Registration No. 33-12911
As filed on October 25, 1996 Registration No. 811-5075
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 21
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 23
(Check appropriate box or boxes)
THE AAL MUTUAL FUNDS
(Exact name of registrant is specified in charter)
222 West College Ave.
Appleton, Wisconsin 54919-0007
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (414)734-5721
Robert G. Same
Secretary
The AAL Mutual Funds
222 West College Avenue
Appleton, WI 54919-0007
(Name and Address of Agent for Services)
Approximate date of proposed public offering: As soon as practicable after the
effective date of the registration statement.
It is proposed that this filing will become effective (check appropriate box)
o immediately upon filing pursuant to paragraph (b) of Rule 485
o on _____________, pursuant to paragraph (b) of Rule 485
o 60 days after filing pursuant to paragraph (a)(1) of Rule 485
xx on January 8, 1997, pursuant to paragraph (a)(ii) of Rule 485
==========================================
Registrant has previously registered an indefinite number of its shares of
beneficial interest pursuant to Rule 24f-2 under the Investment Company Act of
1940. Registrant filed a notice under Rule 24f-2 before June 30, 1995.
==========================================
Page 1 of pages.
Exhibit index is located at Page
<PAGE>
Prospectus
January 8, 1997
The AAL Mutual Funds
222 West College Ave.
P.O. Box 8004
Appleton, WI 54919-0007
1-800-553-6319 414-734-7633 Telecommunications Device for the Deaf
(TDD) 1-800-684-3416
The AAL Mutual Funds (The "Funds") are a series of separate mutual fund
portfolios within a single Trust, each with a specific investment objective. The
Funds offer investment opportunities to eligible Lutherans (including their
families and their enterprises) and to AAL members and employees. This
prospectus describes the following Funds:
THE AAL CAPITAL GROWTH FUND: INVESTING IN LARGE COMPANY STOCKS THE AAL MID
CAP STOCK FUND: INVESTING IN MID-SIZED COMPANY STOCKS THE AAL SMALL CAP STOCK
FUND: INVESTING IN SMALL COMPANY STOCKS THE AAL INTERNATIONAL FUND: INVESTING IN
FOREIGN SECURITIES THE AAL UTILITIES FUND: INVESTING IN PUBLIC UTILITIES
SECURITIES THE AAL BOND FUND: INVESTING IN INVESTMENT GRADE BONDS THE AAL
MUNICIPAL BOND FUND: INVESTING IN TAX-EXEMPT MUNICIPAL SECURITIES THE AAL HIGH
YIELD BOND FUND: INVESTING IN NON-INVESTMENT GRADE SECURITIES THIS FUND INVESTS
PRIMARILY IN LOWER-RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS." INVESTMENTS OF
THIS TYPE ARE SUBJECT TO GREATER RISK OF LOSS OF PRINCIPAL AND INTEREST.
PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THIS FUND. SEE "THE AAL HIGH YIELD BOND FUND - INVESTMENT FACTORS AND THE RISKS
INVOLVED." THE AAL MONEY MARKET FUND: INVESTING IN MONEY MARKET INSTrUMENTS
INVESTMENTS IN THE AAL MONEY MARKET FUND ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THIS FUND WILL BE ABLE TO
MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE FUNDS THAT
PROSPECTIVE INVESTORS OUGHT TO KNOW BEFORE INVESTING. READ IT CAREFULLY AND KEEP
IT FOR FUTURE REFERENCE. You can find more detailed information, including
investment policies, techniques, restrictions, and the risks associated with
them, in the Statement of Additional Information ("SAI"), dated January 8, 1997.
The SAI has been filed with the Securities and Exchange Commission ("SEC") and
is incorporated in this prospectus by reference (which means that it is legally
considered part of this prospectus even though it is not printed here). You can
get a copy of the SAI, and a copy of the annual report, free by calling
800-553-6319, or by writing The AAL Mutual Funds at 222 West College Avenue,
Appleton, Wisconsin 54919-0007. The Telecommunications Device for the Deaf
("TDD") number is 800-684- 3416. The AAL U.S. Government Zero Coupon Target
Fund, Series 2001 and 2006, are described in a separate prospectus and are
closed to additional investments.
<PAGE>
TABLE OF CONTENTS
General
The AAL Capital Growth Fund............................................
Summary of Expenses....................................................
Financial Highlights
The AAL Mid Cap Stock Fund.............................................
Summary of Expenses....................................................
Financial Highlights
The AAL Small Cap Stock Fund...........................................
Summary of Expenses....................................................
Financial Highlights
The AAL International Fund.................................................
Summary of Expenses....................................................
Financial Highlights
The AAL Utilities Fund.................................................
Summary of Expenses....................................................
Financial Highlights
The AAL Bond Fund......................................................
Summary of Expenses....................................................
Financial Highlights
The AAL Municipal Bond Fund............................................
Summary of Expenses....................................................
Financial Highlights
The AAL High Yield Bond Fund..............................................
Summary of Expenses....................................................
Financial Highlights
The AAL Money Market Fund..............................................
Summary of Expenses....................................................
Financial Highlights
Additional Investment Factors and Risks................................
Investment Restrictions................................................
Board of Trustees......................................................
Management of the Trust................................................
Buying Shares in the Funds.............................................
Buying Additional Shares...............................................
Additional Information About Buying Shares.............................
Selling (Redeeming) Your Shares........................................
The AAL Money Market Fund Checks ......................................
Closing Small Accounts.................................................
Reinstatement Privilege................................................
Exchange Privilege.....................................................
Net Asset Value (NAV)..................................................
Dividends, Distributions, and Taxes....................................
Shareholder Maintenance Agreement......................................
Yield and Performance Information......................................
Custodian, Transfer Agent, and Independent Accountants.................
Organization and Description of Shares.................................
Asset Allocation.......................................................
Questions..............................................................
Glossary of Important Terms...........................................
<PAGE>
Prospectus Summary
AAL Capital Management Corporation is a Delaware corporation organized in 1986
and is owned by Aid Associaton for Luthereans ("AAL"). It acts as the investment
adviser ("Adviser") and is responsible making investment decisions for the
Funds. It also acts as distributor ("Distributor") for the Funds selling shares
of the Funds to the investors. As of September 30, 1996, AAL Capital Management
Corporation managed over $3.2 billion for the Funds. AAL is a non-profit,
non-stock membership organization, licensed to do business as a fraternal
benefit society. AAL's mission is to bring Lutherans and their families together
to pursue quality living through financial security, volunteer action and help
for others. AAL has about 1.7 million members and is one of the world's largest
fraternal benefit societies in terms of assets and life insurance in force,
ranking it in the top two percent of all life insurers in the U.S. in terms of
ordinary life insurance ( nearly $78 billion in force). It also offers life,
health and disability income insurance and fixed and variable annuities to its
members. Members belong to one of over 9,400 local AAL branches throughout the
U.S.
The AAL Mutual Funds
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
The AAL Fund Primary Objective Primary Investments Primary Risk(s)
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Capital Growth Long-term capital growth Diversified portfolio of Market, See pages
dividend paying stocks of
large companies
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Mid Cap Stock Long-term capital growth Diversified portfolio of Market, See pages
stocks of mid-sized
companies
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Small Cap Stock Long-term capital growth Diversified portfolio of Market, See pages
stocks of small companies
- ------------------------------ ---------------------------- --------------------------- ----------------------------
International Long-term capital growth Diversified portfolio of Currency, Liquidity,
foreign stocks Political, Economic and
Market See pages
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Utilities Current income, long-term Diversified portfolio of Market, Interest Rate, See
income and capital growth stocks and bonds of pages
public utilities companies
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Bond High current income Investment grade bonds -- Economic, Interest Rate,
consistent with capital BBB or higher See pages
preservation
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Municipal Bond High current income exempt Investment grade Economic, Interest RateSee
from Federal taxes municipal bonds -- at pages
consistent with capital least 75% in A or higher
preservation and 0-25% in BBB or higher
- ------------------------------ ---------------------------- --------------------------- ----------------------------
High Yield Bond High current income and High risk, high yield Economic, Interest rate,
secondarily capital growth bonds -- BB or lower Market, See pages
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Money Market High level of current Money Market instruments Interest Rate See pages
income consistent with in two highest rating
liquidity and capital categories -- A-1 and A-2
preservation
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
<PAGE>
This prospectus describes two classes of shares, Class A Shares and Class B
Shares. You pay a sales charge immediately when you purchase Class A Shares. You
only pay a sales charge when you redeem Class B Shares held for less than five
years. However, Class B Share 12b-1 fees are higher than those for Class A
Shares. The choice as to which class you should purchase primarily depends upon
how long you intend to own the shares. If you intend to own shares for more than
five years, then you should consider Class B Shares. If you may redeem shares in
less than five years, you should consider Class A Shares.
The following Table shows some of the differences:
<TABLE>
<CAPTION>
<S> <C>
Class A Shares Class B Shares
- -------------- --------------
Maximum Front-End Sales Charge 4.75% No Front End Sales Charges
- ------------------------------------ --------------------------
No Contingent Deferred Sales Charge Maximum Contingent Deferred Sales Charge 5%
- ----------------------------------- -------------------------------------------
Lower annual expenses than Class B Shares Higher annual expenses than Class A Shares
- ----------------------------------------- ------------------------------------------
No conversion to Class B Shares Automatic conversion to Class A Shares after 5 years
- ------------------------------- ----------------------------------------------------
</TABLE>
READING THIS PROSPECTUS. We have placed a glossary defining important
terms at the end of this prospectus. If you are unsure of the meaning of any
term in the prospectus, please check the glossary.
References to "you" and "your" in this prospectus refer to prospective investors
or shareholders, while references to "we," "us," or "our" refer to the Trust or
the Funds generally. Please refer to "Summary of Expenses and Expense Example."
<PAGE>
THE AAL CAPITAL GROWTH FUND
INVESTMENT OBJECTIVE
The AAL Capital Growth Fund seeks long-term capital growth by investing
primarily in common stock and securities convertible into common stock. We
designed this Fund for people who want to invest for the long term. There is no
assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES
To achieve our investment objective, we focus on purchasing dividend-paying
securities issued by companies that have growth in earnings per share that is
higher than the growth in earnings per share of the S&P 500(R). In selecting
stocks, we look for quality, predictability of operating growth, and financial
strength.
We also may invest in preferred stocks and bonds; however, we do not invest in
bonds for capital growth or for long periods of time. We limit our investments
in convertible securities to no more than 5% of the Fund's net assets.
ADVISORY FEES
We pay the Adviser a fee based on the average daily net assets of the Fund. This
annual fee, shown below, is paid monthly:
0.70 of 1% on the first $250 million; 0.65 of 1% on the next $250 million; 0.575
of 1% on the next $500 million; and 0.50 of 1% on assets over $1 billion.
PORTFOLIO MANAGER
Frederick L. Plautz has managed the day-to-day investments for the Fund since
November 1, 1995. Prior to managing the Fund, Mr. Plautz served as vice
president and portfolio manager for Federated Investors from 1990 through
October 1995.
INVESTMENT FACTORS AND THE RISKS INVOLVED
The value of the Fund's investments may increase and decrease more than the
stock market in general, as measured by the S&P 500(R). There is a risk you
could lose money investing in the Fund, especially if you sell your shares
during a time when the Fund is declining in value.
For more information on risks see Additional Investment Factors and Risks on
page --.
<PAGE>
SUMMARY OF EXPENSES AND EXPENSE EXAMPLE
The purpose of this information is to assist you in understanding the various
costs and expenses that you may directly and indirectly incur with your
investment in the Fund. The tables show recurring and non-recurring Fund
expenses. Shareholder Transaction Expenses are based upon the maximum 4.75%
sales charge for Class A Shares which is reduced for purchases of $25,000 or
more, and the maximum 5.00% contingent deferred sales charge for Class B Shares
which is reduced by 1.00% for each year the Class B Shares are owned.
<TABLE>
<CAPTION>
<S> <C> <C>
------------------------------------------------------------------------------------------------ ------------- ------------
Shareholder Transaction Expenses Class A Class B
------------------------------------------------------------------------------------------------ ------------- ------------
Maximum sales charge imposed on purchases (as a percentage of offering price) 4.75% none
Maximum sales charge imposed on reinvested dividends none none
Maximum deferred sales charge none 5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.) none none
Exchange fee none none
Total 4.75% 5.00%
------------------------------------------------------------------------------------------------ ------------- ------------
</TABLE>
Operating expenses are expressed as a percentage of average net assets.
Percentages shown for management fees and 12b-1 distribution fees are the
maximum fees permitted under The AAL Mutual Funds Investment Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts incurred in the prior fiscal year. The Expense Example shows the
cumulative expenses attributable to a hypothetical $1,000 investment with an
annual return of 5% compounded annually, in each class for the years shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------- ----------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net assets) Expense Example
-------------------------------------------------------------------------- ----------------------------------------------------
---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
Class A Class B Class A Class B Class B No
Redemption
---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
Management Fee .70% .70% After 1 year $59 $69 $19
---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
12b-1 Distribution and Service Fees .25% 1.00% After 3 Years $82 $90 $60
---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
Other Expenses .17% .17% After 5 Years $107 $103 $103
---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
Total Fund Operating Expenses 1.12% 1.87% After 10 years $180 -
---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
The audited Financial Highlights Table covers The AAL Capital Growth Fund for
the periods shown and is based on a share of beneficial interest outstanding
throughout the applicable period. You should read the Table in conjunction with
the Fund's financial statements and related notes, all of which have been
audited by Price Waterhouse LLP, independent accountants. These documents
together with a more detailed discussion and analysis of the Fund's performance,
are contained in the Funds' April 30, 1996 Annual Report. Copies of the 1996
Annual Report are available from the Distributor without charge.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM INVESTMENT LESS DISTRIBUTIONS
OPERATIONS
NAV Net Net Total from Dividends Distribution Total NAV: Total Net Assets
Start Investment Realized Investment from Net from net Dividends End of return at end of
of Income and un- Operations Investment realized and Period for Period
Period (loss) realized Income Gain on Distributions Period
gain(loss)on investment (1)
investments
July 16, 10 0.112 -1.709 -1.597 -0.043 -0.043 $8.36 -15.95% $23,672,346
1987 April 30,
1988
30-Apr-89 8.36 0.218 1.466 1.684 -0.204 -0.204 $9.84 20.46% $48,915,003
30-Apr-90 9.84 0.233 0.889 1.122 -0.242 -0.242 $10.72 11.45% $119,731,099
30-Apr-91 10.72 0.271 1.726 1.997 -0.269 -0.028 -0.297 $12.42 18.93% $209,055,868
30-Apr-92 12.42 0.276 1.659 1.935 -0.28 -0.015 -0.295 $14.06 15.77% $423,231,713
30-Apr-93 14.06 0.284 0.761 1.045 -0.274 -0.001 -0.275 $14.83 7.52% $714,184,330
30-Apr-94 14.83 0.296 -0.287 0.009 -0.286 -0.063 -0.349 $14.49 0.00% $868,850,190
30-Apr-95 14.49 0.274 1.699 1.973 -0.298 -0.605 -0.903 $15.56 14.37% $1,032,168,121
30-Apr-96 15.56 0.201 3.756 3.957 -0.217 -0.51 -0.727 $18.79 25.85% $1,381,352,222
May 1, 1996
October 31, 1996
<CAPTION>
<S> <C> <C> <C> <C>
SUPPLEMENTAL DATA
AND RATIOS
Ratio Ratio of Portfolio Average
of Net investment Turnover Commission
operating income(loss) Rate Paid
expenses to average net
to Average assets* (1)(2)
Net
Assets*
(1)(2)
July 16, 1.50% 2.61% 1.36%
1987 April 30,
1988
30-Apr-89 1.50% 2.80% 2.78%
30-Apr-90 1.44% 2.56% 1.43%
30-Apr-91 1.41% 2.59% 2.26$
30-Apr-92 1.28% 2.27% 1.11%
30-Apr-93 1.20% 2.15% 2.99%
30-Apr-94 1.18% 2.07% 40.60%
30-Apr-95 1.17% 1.89% 33.34%
30-Apr-96 1.12% 1.16% 44.26%
May 1, 1996
October 31, 1996
</TABLE>
<PAGE>
*If the Fund had paid all of its expenses the ratios would be as follows: Ratio
of Net operating expenses to Average Net Assets (2), 1.91%, 1.77%, 1.49%, 2.59%,
2.27%, 2.15%, 2.07%, 1.89%, and 1.16%, Ratio of net investment income (loss) to
average net assets (2), 2.21%, 2.54%, 2.51%, 2.26%, 1.11%, 2.99%, 40.60%,
33.34%, and 44.26%, (1) Total return assumes reinvestment of all dividends and
distributions but does not reflect any deductions for sales charges. The
aggregate (not annualized) total return is shown for periods less than one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) are calculated
on an annualized basis
<PAGE>
THE AAL MID CAP STOCK FUND
INVESTMENT OBJECTIVE
The AAL Mid Cap Stock Fund seeks capital growth by investing primarily in a
diversified portfolio of common stocks, and securities convertible into common
stocks, of mid-sized companies. By mid-sized companies, we mean those with
market capitalization's ranging from $100 million to $5 billion. We designed
this Fund for people who want to invest for the long term, and who are able to
accept the risks involved in investing in mid-sized companies. There is no
assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES
Under normal circumstances, we invest at least 65% of our total assets in
stocks, not including convertible securities, of mid-sized companies. Generally,
we focus on companies with market capitalization's ranging from $400 million to
$3.5 billion. Mid-sized companies tend to be smaller and less-seasoned than
companies listed in the S&P 500(R). These companies may trade on the
over-the-counter market as well as on U.S. national securities exchanges.
We may invest the remaining 35% of our total assets in any combination of
additional mid cap stocks, larger capitalization stocks, and securities
convertible into such stocks.
We look for mid-sized companies (including companies initially offering their
stock to the public) that, in our opinion: 1) have prospects for growth in their
sales and earnings; 2) are in an industry with a good economic outlook; 3) have
higher quality management and more management depth than small companies; and 4)
are in a strong financial position. The Fund tends to invest in companies in the
middle stages of their development. These companies tend to have established a
record of profitability and may possess a new technology, unique product, or
market niche.
We tend to sell the stock of companies when we think other investments offer
better opportunities. Due to this policy, the Fund may from time to time have
short-term gains or losses.
We also may invest in foreign securities listed and traded on a U.S. national
securities exchange.
ADVISORY FEE
We pay the Adviser a fee based on the average daily net assets of the Fund. This
annual fee, shown below, is paid monthly:
0.75 of 1% on the first $200 million; and 0.65 of 1% on assets over $200
million.
<PAGE>
PORTFOLIO MANAGER
Kevin Schmitting, CFA, has managed the day-to-day investments for the Fund since
November 1, 1995. Prior to managing the Fund, Mr. Schmitting served as
investment director and in other investment capacities for the State of
Wisconsin Investment Board from 1984 through October 1995. Mr. Schmitting also
manages The AAL Small Cap Stock Fund.
INVESTMENT FACTORS AND THE RISKS INVOLVED
Stocks of mid-sized companies may present greater risks than stocks of larger,
more established companies, but may present less risk than stocks of smaller
companies. Mid-sized companies tend to have relatively smaller revenues,
narrower product lines, less management depth, and smaller shares of the market
for their products or services than large companies.
The value of the Fund's investments may increase and decrease more than the
stock market in general, as measured by the S&P 500(R). There is a risk that you
could lose money investing in the Fund, especially if you sell your shares
during a time when the Fund is declining in value.
Over time, the stock market tends to move in cycles, with periods when stock
prices rise generally and periods when stock prices decline generally.
For more information on risks see Additional Investment Factors and Risks on
page --.
<PAGE>
SUMMARY OF EXPENSES AND EXPENSE EXAMPLE
The purpose of this information is to assist you in understanding the various
costs and expenses that you may directly and indirectly incur with your
investment in the Fund. The tables show recurring and non-recurring Fund
expenses. Shareholder Transaction Expenses are based upon the maximum 4.75%
sales charge for Class A Shares which is reduced for purchases of $25,000 or
more, and the maximum 5.00% contingent deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------- ------------- -------------
Shareholder Transaction Expenses Class A Class B
- ---------------------------------------------------------------------------------------------------- ------------- -------------
Maximum sales charge imposed on purchases (as a percentage of offering price) 4.75% none
Maximum sales charge imposed on reinvested dividends none none
Maximum deferred sales charge none 5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.) none none
Exchange fee none none
Total 4.75% 5.00%
- ---------------------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
Operating expenses are expressed as a percentage of average net assets.
Percentages shown for management fees and 12b-1 distribution fees are the
maximum fees permitted under The AAL Mutual Funds Investment Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts incurred in the prior fiscal year. The Expense Example shows the
cumulative expenses attributable to a hypothetical $1,000 investment with an
annual return of 5% compounded annually, in each class for the years shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------ ------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net assets) Expense Example
------------------------------------------------------------------------------ ------------------------------------------------
------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
Class A Class B Class A Class B Class B No
Redemption
------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
Management Fee .75% .75% After 1 year $61 $71 $21
------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
12b-1 Distribution and Service Fees .25% 1.00% After 3 Years $90 $95 $65
------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
Other Expenses .39% .39% After 5 Years $121 $111 $111
------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
Total Fund Operating Expenses 1.39%% 2.04%% After 10 years $209 -
------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
<PAGE>
Financial Highlights
The audited Financial Highlights Table covers The AAL Mid Cap Stock Fund for the
periods shown and is based on a share of beneficial interest outstanding
throughout the applicable period. You should read the Table in conjunction with
the Fund's financial statements and related notes, all of which have been
audited by Price Waterhouse LLP, independent accountants. These, together with a
more detailed discussion and analysis of the Fund's performance, are contained
in the Funds' April 30, 1996 Annual Report, copies of which are available from
the Distributor without charge.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM INVESTMENT LESS DISTRIBUTIONS
OPERATIONS
NAV Net Net Total Dividends Distribution Total NAV: Total Net Assets
Start Investment Realized from from from Dividends End of return at end of
of Income and un- Investment Net net and Period for Period
Period (loss) realized Operations Investment realized Distributions Period
gain(loss) Income Gain on (1)
on investment
investments
June 30, 1993 to 10.00 -.044 0.424 0.380 0 0 0 10.38 3.80% $142,529,469
30-Apr-94
30-Apr-95 10.38 -0.054 0.594 0.540 0 0 0 10.92 5.20% $220,792,070
30-Apr-96 10.92 -0.100 6.290 6.190 0 0 0 17.11 56.59% $424,974,828
May 1,
1996 October 31,
1996
UNAUDITED
<CAPTION>
<S> <C> <C> <C> <C>
SUPPLEMENTAL DATA
AND RATIOS
Ratio Ratio of Portfolio Average
of Net net Turnover Commission
operating investment Rate
expenses income Paid
to Average (loss) to
Net Assets average net
(1)(2) assets(1)(2)
June 30, 1993 to 1.72% -1.14% 55.49%
30-Apr-94
30-Apr-95 1.54% -0.77% 88.18%
30-Apr-96 1.39% -0.82% 90.14%
May 1,
1996 October 31
1996
UNAUDITED
</TABLE>
If the Fund had paid all of its expenses, the ratios would be as follows: Ratio
of Net operating expenses to Average Net Assets (2), 1.73%, 1.54%, and 1.39%,
Ratio of net investment income (loss) to average net assets (2), (1.14%),
(0.77%), and (0.82%), (1) Total return assumes reinvestment of all dividends and
distributions but does not reflect any deductions for sales charges. The
aggregate (not annualized) total return is shown for periods less than one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) are calculated
on an annualized basis
<PAGE>
THE AAL SMALL CAP STOCK FUND
INVESTMENT OBJECTIVE
The AAL Small Cap Stock Fund seeks capital growth by investing primarily in a
diversified portfolio of common stocks, and securities convertible into common
stocks of small companies. By small companies, we mean those with market
capitalization's of less than $1 billion. We designed this Fund for people who
want to invest for the long term, and who are able to accept the risks involved
in investing in small companies. There is no assurance that the Fund will
achieve its investment objective.
INVESTMENT POLICIES
Under normal circumstances, we invest at least 65% of our total assets in
stocks, not including convertible securities, of small companies. Generally we
focus on companies with market capitalization's ranging from $30 million to $600
million. Small companies tend to be substantially less-seasoned than companies
listed in the Standard & Poor's 500 Index(R) ("S&P 500(R)") or The S&P Mid Cap
400 Index(R). These companies may trade on the over-the-counter market as well
as on U.S. securities exchanges such as the New York Stock Exchange ("NYSE").
We may invest the remaining 35% of our total assets in any combination of
additional small cap stocks, larger capitalization stocks, and securities
convertible into such stocks.
We look for small companies (including companies initially offering their stocks
to the public) that, in our opinion: 1) are in their early stages of development
or positioned in new and emerging industries; 2) have an opportunity for rapid
growth; 3) have capable management; and 4) are financially sound. These small
companies generally are not as well known to the investing public and have less
of an investor following than larger companies. Therefore, they may provide
greater opportunities for long-term capital growth as a result of relative
inefficiencies in the marketplace.
We tend to sell the stock of companies when we think that other investments
offer better opportunities. Because of this policy, the Fund may from time to
time have short-term gains or losses.
We also may invest in foreign securities that are listed and traded on a U.S.
national securities exchange.
ADVISORY FEE
We pay the Adviser a fee based on the average daily net assets of the Fund. This
annual fee, shown below, is paid monthly:
0.75 of 1% on the first $200 million; and 0.65 of 1% on assets over $200
million.
<PAGE>
PORTFOLIO MANAGER
Kevin Schmitting, CFA, manages the day-to-day investments for the Fund. Prior to
November 1, 1995, Mr. Schmitting served as investment director and in other
investment capacities for the State of Wisconsin Investment Board beginning in
1984 through October 1995. Mr. Schmitting also manages The AAL Mid Cap Stock
Fund (formerly The AAL Smaller Company Stock Fund).
INVESTMENT FACTORS AND THE RISKS INVOLVED
Small, less-established companies may have relatively small revenues, limited
product lines, lack of management depth, and a small share of the market for
their products or services. Stocks of these companies present greater risks than
stocks of larger, more established companies.
Historically, small capitalization stocks have experienced more volatility in
price than mid-size and large capitalization stocks. Some of the reasons they
have greater volatility include: 1) the less certain growth prospects of small
firms; 2) the lower degree of liquidity in the markets for such stocks; and 3)
the greater sensitivity of small companies to changing economic conditions.
In the short term, the value of the Fund's investments may increase and decrease
substantially more than the stock market in general, as measured by the S&P
500(R). There may be greater risks that you could lose your money investing in
the Fund, especially if you sell your shares during a time when the Fund is
declining in value.
Over time, the stock market tends to move in cycles, with periods when stock
prices rise generally and periods when stock prices decline generally. The
prices for stocks in small companies tend to have more volatility than stocks in
larger companies. In other words, they tend to rise and fall more dramatically
than those for larger companies.
For more information on risks see Additional Investment Factors and Risks on
page --.
<PAGE>
SUMMARY OF EXPENSES AND EXPENSE EXAMPLE
The purpose of this information is to assist you in understanding the various
costs and expenses that you may directly and indirectly incur with your
investment in the Fund. The tables show recurring and non-recurring Fund
expenses. Shareholder Transaction Expenses are based upon the maximum 4.75%
sales charge for Class A Shares which is reduced for purchases of $25,000 or
more, and the maximum 5.00% contingent deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------- ------------- -------------
Shareholder Transaction Expenses Class A Class B
- ---------------------------------------------------------------------------------------------------- ------------- -------------
Maximum sales charge imposed on purchases (as a percentage of offering price) 4.75% none
Maximum sales charge imposed on reinvested dividends none none
Maximum deferred sales charge none 5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.) none none
Exchange fee none none
Total 4.75% 5.00%
- ---------------------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
Operating expenses are expressed as a percentage of average net assets.
Percentages shown for management fees and 12b-1 distribution fees are the
maximum fees permitted under The AAL Mutual Funds Investment Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
management's estimates of amounts expected to be incurred in this fiscal year,
including any reimbursements. The Expense Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment with an annual return of 5%
compounded annually, in each class for the years shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------- -----------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net assets) Expense Example
------------------------------------------------------------------------- -----------------------------------------------------
------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
Class A Class B Class A Class B Class B No
Redemption
------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
Management Fee .75% .75% After 1 year $68 $78 $28
------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
Rule 12b-1 Distribution and Service Fees .25% 1.00% After 3 Years $111 $116 $86
------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
Other Expenses 1.00 1.00 After 5 Years NA NA NA
------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
Total Fund Operating Expenses 2.00% 2.75% After 10 years NA NA NA
------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
<PAGE>
FINANCIAL HIGHLIGHTS
The unaudited Financial Highlights Table covers The AAL Small Cap Stock Fund for
the period from July 1, 1996 through October 31, 1996. The information is based
on a share of beneficial interest outstanding throughout the applicable period.
The Funds' financial statements and related notes, are contained in the Fund's
October 31, 1996 Semi-Annual Report, copies of which are available from the
Distributor without charge.
INCOME FROM INVESTMENT LESS DISTRIBUTIONS
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NAV Net Net Total Dividends Distribution Total NAV: End Total return
Start Investment Realized from from Net from net Dividends of Period for Period
of Income and Investment Investment realized and (1)
Period (loss) unrealized Operations Income Gain on Distribution
gain(loss) on investments
investments
July 1, 1996 to $10.00
October 31, 1996
<CAPTION>
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA
AND RATIOS
Net Assets at Ratio of Ratio of net Portfolio Average
end of Period Net investment Turnover Commission
operating income(loss)to Rate Paid
expenses average net
to Average assets*(1)(2)
Net Assets*
1)(2)
July 1, 1996 to
October 31, 1996
</TABLE>
*If the Fund had paid all of its expenses, the ratios would be as follows: Ratio
of Net operating expenses to Average Net Assets (2), Ratio of net investment
income (loss) to average net assets (2), (1) Total return assumes reinvestment
of all dividends and distributions but does not reflect any deductions for sales
charges. The aggregate (not annualized) total return is shown for periods less
than one year. (2) For periods less than one year, both the ratio of net
operating expenses to average net assets and the ratio of net investment income
(loss) are calculated on an annualized basis
<PAGE>
THE AAL INTERNATIONAL FUND:
INVESTMENT OBJECTIVE
The Fund's primary investment objective is long-term growth of capital through
investing in a diversified portfolio of non-U.S. securities.
INVESTMENT POLICIES
Under normal circumstances, we invest at least 65% of the Fund's total assets in
foreign stocks primarily traded in at least three countries, not including the
United States. However, we may not invest more than 25% of the Fund's assets in
any one country. We have no other limitations on how much of the Fund's assets
we may invest in securities primarily traded in any one country.
We tend to invest in stocks primarily trading in the United Kingdom, Western
Europe, Australia, Far East, Latin America and Canada. Many of these markets are
mature, while others are emerging (for example, Indonesia and Argentina). We do
not have any limits on the extent to which we will invest in either mature or
emerging markets, and may invest up to 100% of the Fund's total assets in
emerging markets. We have listed the countries and their classifications as
mature or emerging in the Statement of Additional Information. From time to
time, we may invest in securities trading in other countries not listed here or
in the Statement of Additional Information.
Typically, we consider an issuer as domiciled in a particular country if it:
(1) is incorporated under the laws of that country;
(2) has at least 50% of the value of its assets located in that country; and
(3) derives at least 50% of its income from operations or sales in that country.
For issuers that do not meet the above domicile criterion, we will make a
good-faith determination based on such factors as the location of its assets,
personnel, sales and earnings.
We also may invest in: additional foreign stocks; U.S. stocks; structured notes
and/or preferred stocks; and up to 20% in U.S. and foreign bonds and other debt
obligations, including lower-rated debt, commonly referred to as "junk bonds"
(i.e., securities rated BB or lower by Standard & Poor's Corporation or Ba or
lower by Moody's Investor Services, Inc.) and unrated securities. Structured
notes and/or preferred stocks involve
<PAGE>
additional risk, including structures that may reduce the coupons and/or
dividends amounts to zero or the redemption amounts payable at maturity as a
result of declines in the value of the underlying instrument. Also, structured
securities may have more volatility than the price of the underlying instrument.
We have no restrictions on the ratings of debt securities acquired by the Fund
or the portion of the Fund's assets that we invest in a particular rating
category. We have provided a description of the ratings assigned by D&P, Moody's
and S&P in the Appendix to this Prospectus. For more information on structured
securities, please see the Statement of Additional Information, and for high
yield bonds, please see "The AAL High Yield Bond Fund" and the Statement of
Additional Information.
In addition, pending our investment of cash received from new sales of the
Fund's shares or to meet ordinary daily cash needs, we may temporarily hold cash
(U.S. dollars, foreign currencies or multinational foreign currency units) and
invest any portion the Fund's total assets in money market instruments.
Although there is no assurance that this objective will be met, the Adviser and
Sub-Adviser will use their best efforts to achieve the objective. Under normal
circumstances, The Fund will invest its total assets in foreign securities with
at least 65% of such assets invested in equity securities primarily traded in at
least three countries, not including the United States. In addition, issues of
any one country will represent no more than 25% of the Fund's assets, under
normal circumstances. If, for temporary defensive purposes, the Advisers believe
the Fund should invest entirely in U.S. securities or in securities primarily
traded in one or more foreign countries, or in debt securities to a greater
extent than 20%, then the Advisers may not follow the normal guidelines and may
invest up to 100% of the Fund's assets without regard to the above guidelines.
In addition, pending investment of proceeds from new sales of shares or to meet
ordinary daily cash needs, The Fund may temporarily hold cash (U.S. dollars,
foreign currencies or multinational foreign currency units) and may invest any
portion of its assets in money market instruments.
ADVISORY AND SUB-ADVISORY FEES
We pay the Adviser a fee based on the average daily net assets of the Fund. This
annual fee is at the rate of 1% and is paid monthly:
Societe Generale Asset Management Corp., 1221 Avenue of the Americas, New York,
New York 10020 has been engaged to act as the Sub-Adviser to The AAL
International Fund. The Sub-Adviser is a registered investment adviser that is
indirectly owned by Societe Generale, one of France's largest banks. Under the
Sub-Advisory Agreement, the Sub-Adviser, subject to the direction and control of
the Adviser and the Board of Trustees, determines the securities that will be
purchased or sold by the Fund, arranges for their purchase and sale, and renders
other assistance to the Adviser in formulating and implementing the investment
program for the Fund. For its services, the Sub-Adviser receives a fee from the
fees paid to the Adviser, at an annual rate of .75 of 1% of The AAL
International Fund's average daily net assets.
<PAGE>
PORTFOLIO MANAGER
Jean-Marie Eveillard, President and Director of the Sub-Adviser, is primarily
responsible for the day-to-day management of the Fund's investment portfolio.
Mr. Eveillard has been President and Director since April, 1990.
OTHER INVESTMENT FACTORS AND THE RISKS INVOLVED
Investment in the Fund requires consideration of a number of factors that are
usually not important when investing in domestic securities. Some or all of the
described risks may affect securities held by the Fund. In addition, the Fund
may invest from 0% to 100% of its net assets in emerging growth countries.
Investments in emerging growth countries may be subject to more risk than
investments in mature countries. These risks, described in Additional Investment
Factors and Risks on page --. include currency, liquidity, political, economic
and market risks, as well as risks associated with governmental regulation and
nonuniform corporate disclosure standards. The greater the percentage of the
Fund's net assets that are invested in emerging countries, the greater the
investment risks.
EXPENSES
The cost of investing in foreign securities is higher than the cost of investing
in U.S. securities. Investing in the Fund is an efficient way for an investor to
participate in foreign markets but its expenses, including advisory and
custodial fees, are higher than the expenses of a typical domestic fund,
although not necessarily higher than for other funds with similar investment
policies.
<PAGE>
SUMMARY OF EXPENSES AND EXPENSE EXAMPLE
The purpose of this information is to assist you in understanding the various
costs and expenses that you may directly and indirectly incur with your
investment in the Fund. The tables show recurring and non-recurring Fund
expenses. Shareholder Transaction Expenses are based upon the maximum 4.75%
sales charge for Class A Shares which is reduced for purchases of $25,000 or
more, and the maximum 5.00% contingent deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------- ------------- -------------
Shareholder Transaction Expenses Class A Class B
- ---------------------------------------------------------------------------------------------------- ------------- -------------
Maximum sales charge imposed on purchases (as a percentage of offering price) 4.75% none
Maximum sales charge imposed on reinvested dividends none none
Maximum deferred sales charge none 5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.) none none
Exchange fee none none
Total 4.75% 5.00%
- ---------------------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
Operating expenses are expressed as a percentage of average net assets.
Percentages shown for management fees and 12b-1 distribution fees are the
maximum fees permitted under The AAL Mutual Funds Investment Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts incurred in the prior fiscal year. The Expense Example shows the
cumulative expenses attributable to a hypothetical $1,000 investment with an
annual return of 5% compounded annually, in each class for the years shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------- --------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net Expense Example
assets)
--------------------------------------------------------------------- --------------------------------------------------------
------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
Class A Class B Class A Class B Class B No
Redemption
------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
Management Fee 1.00% 1.00% After 1 year $69 $80 $30
------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
12b-1 Distribution and Service Fees .25% 1.00% After 3 Years $112 $121 $91
------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
Other Expenses .90% .90% After 5 Years NA NA NA
------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
Total Fund Operating Expenses 2.15%% 2.90%% After 10 years NA NA NA
------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
<PAGE>
FINANCIAL HIGHLIGHTS
The audited Financial Highlights Table covers The AAL International Fund for the
periods shown and is based on a share of beneficial interest outstanding
throughout the applicable period. You should read the Table in conjunction with
the Fund's financial statements and related notes, all of which have been
audited by Price Waterhouse LLP, independent accountants. These, together with a
more detailed discussion and analysis of the Fund's performance, are contained
in the Funds' April 30, 1996 Annual Report, copies of which are available from
the Distributor without charge.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM INVESTMENT LESS DISTRIBUTIONS
OPERATIONS
NAV Net Net Total Dividends Distribution Total NAV: Total Net Assets
Start Investment Realized from from from Dividend End of return at end of
of Income and Investment Net net and Period for Period
Period (loss) unrealized Operations Investment realized Distributions Period
gain(loss) Income Gain on (1)
on investments investments
Investments
August 1, 10.00 0.046 1.058 1.104 -0.024 0 -0.024 11.08 11.07% $57,117,185
1995 to
April 30,
1996
May 1,
1996 to
October
31, 1996
UNAUDITED
<CAPTION>
<S> <C> <C> <C> <C>
SUPPLEMENTAL DATA
AND RATIOS
Ratio Ratio of Portfolio Average
of Net net Turnove Commission
operating investment Rate
expenses income Paid
to (loss) to
Average average
Net net
Assets* assets*
(1)(2) (1)(2)
2.15% 0.94% 1.30% 0.018
August 1,
1995 to
April 30,
1996
May 1,
1996 to
October
31, 1996
UNAUDITED
</TABLE>
*If the Fund had paid all of its expenses, the ratios would be as follows: Ratio
of Net operating expenses to Average Net Assets (2), 2.32%, Ratio of net
investment income (loss) to average net assets (2), .77%, (1) Total return
assumes reinvestment of all dividends and distributions but does not reflect any
deductions for sales charges. The aggregate (not annualized) total return is
shown for periods less than one year. (2) For periods less than one year, both
the ratio of net operating expenses to average net assets and the ratio of net
investment income (loss) are calculated on an annualized basis
<PAGE>
THE AAL UTILITIES FUND
INVESTMENT OBJECTIVE
The AAL Utilities Fund seeks current income, long-term growth of income and
capital growth by investing primarily in a diversified portfolio of public
utility securities. We designed this Fund for people who want to invest for the
long term and who are able to accept the risks involved in investing in the
public utility industry. There is no assurance that the Fund will achieve its
investment objective.
INVESTMENT POLICIES
Under normal circumstances, we invest at least 65% of our total assets in the
securities (stocks and bonds) of public utility companies. Examples of public
utility companies include those that: manufacture, produce, generate, transmit
and sell water, gas, electric, energy and telephone, telegraph, satellite,
microwave and other communication facilities for public benefit.
We may invest the remainder of the Fund's total assets in the securities of
companies in other industries.
We look for public utility companies that: (1) have a good growth rate and
return on capital; (2) are financially sound; (3) have high-quality management;
and (4) are in a favorable regulatory and competitive environment.
We buy bonds only if, at the time of purchase, they are rated investment grade
by at least two Nationally Recognized Statistical Rating Organizations (NRSRO).
Any commercial paper we buy must be rated in the top two categories by an NRSRO,
or if unrated, the Adviser must determine they are of investment grade.
FOREIGN SECURITIES
Although we have no present intention to do so, The AAL Utilities Fund may
invest up to 15% of its net assets in the securities of utility companies
located outside the United States. We also may invest in foreign securities in
domestic markets through depository receipts (i.e. American Depository Receipts
("ADRs")) and securities of foreign issuers that are traded on a U.S. national
securities exchange or the NASDAQ National Market System without regard to the
15% limitation.
ADVISORY FEES
We pay the Adviser a fee based on the average daily net assets of the Fund. This
annual fee, shown below, is paid monthly:
0.50 of 1% on the first $250 million; and 0.45 of 1% on assets over $250
million.
<PAGE>
PORTFOLIO MANAGER
Lewis Alexander Bohannon, CFA, has managed the day-to-day Fund investments since
November 1, 1995. From 1980 through 1994, Mr. Bohannon was at Cigna Corporation,
serving as managing director and portfolio manager from 1990 to 1994.
INVESTMENT FACTORS AND THE RISKS INVOLVED
Although we attempt to diversify our investments within the public utilities
industry in terms of the types of issuers and securities (stocks and bonds), due
to the fact that we concentrate our investments in a single industry, the public
utilities industry, you should not consider investment in this Fund a
diversified investment program. These investments are subject to the risks
associated with the public utilities industry. These risks may include increased
operating expenses, high interest costs, environmental regulations, and
regulatory changes. Some public utilities are facing increased competition,
which may affect utility companies independently from the securities markets as
a whole.
Public utility company securities are sensitive to interest changes,
particularly with respect to bonds. A decline in interest rates may increase the
value of the securities in the Fund's portfolio, while an increase in interest
rates may reduce their value.
With regard to stock investments, over time the market tends to move in cycles,
with periods when stock prices rise generally and periods when stock prices
decline generally. Likewise, general changes in the prices of utilities stocks
will affect the net asset value of the Fund. There is a risk you could lose
money investing in the Fund, especially if you sell your shares during a time
when the Fund is declining in value.
For more information on risks see Additional Investment Factors and Risks on
page --.
<PAGE>
SUMMARY OF EXPENSES AND EXPENSE EXAMPLE
The purpose of this information is to assist you in understanding the various
costs and expenses that you may directly and indirectly incur with your
investment in the Fund. The tables show recurring and non-recurring Fund
expenses. Shareholder Transaction Expenses are based upon the maximum 4.75%
sales charge for Class A Shares which is reduced for purchases of $25,000 or
more, and the maximum 5.00% contingent deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------- ------------- -------------
Shareholder Transaction Expenses Class A Class B
- ---------------------------------------------------------------------------------------------------- ------------- -------------
Maximum sales charge imposed on purchases (as a percentage of offering price) 4.75% none
Maximum sales charge imposed on reinvested dividends none none
Maximum deferred sales charge none 5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.) none none
Exchange fee none none
Total 4.75% 5.00%
- ---------------------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
Operating expenses are expressed as a percentage of average net assets.
Percentages shown for management fees and 12b-1 distribution fees are the
maximum fees permitted under The AAL Mutual Funds Investment Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts incurred in the prior fiscal year. The Expense Example shows the
cumulative expenses attributable to a hypothetical $1,000 investment with an
annual return of 5% compounded annually, in each class for the years shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------- --------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net Expense Example
assets)
---------------------------------------------------------------------- --------------------------------------------------------
------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
Class A Class B Class A Class B Class B No
Redemption
------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
Management Fee .50% .50% After 1 year $59 $70 $20
------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
12b-1 Distribution and Service Fees .25% 1.00% After 3 Years $84 $92 $62
------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
Other Expenses** .45% .45% After 5 Years $107 $107
------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
Total Fund Operating Expenses 1.20% 1.95% After 10 years
------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
<PAGE>
FINANCIAL HIGHLIGHTS
The audited Financial Highlights Table covers The AAL Utilities Fund for the
periods shown and is based on a share of beneficial interest outstanding
throughout the applicable period. You should read the Table in conjunction with
the Fund's financial statements and related notes, all of which have been
audited by Price Waterhouse LLP, independent accountants. These, together with a
more detailed discussion and analysis of the Fund's performance, are contained
in the Funds' April 30, 1996 Annual Report, copies of which are available from
the Distributor without charge.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM INVESTMENT LESS DISTRIBUTIONS
OPERATIONS
NAV Net Net Total Dividends Distribution Total NAV: Total Net Assets
Start Investment Realized from from from Dividends End of return at end of
of Income and Investment Net net and Period for Period
Period (loss) unrealized Operations Investment realized Distributions Period
gain(loss) Income Gain on (1)
on investments
investments
March 18,
1994 to
April 10,
1994 10.00 0.002 (0.072) (0.050) - - - 9.95 -50% $15,423,661
April 30,
1995 9.95 0.338 (0.498) (0.160) (0.320) - (0.320) 9.47 -151% $70,861,404
April 30,
1996 9.47 0.360 1.420 1.780 (0.350) - (0.350 10.90 18.90% $114,460,386
May 1, 1996
to October
31, 1996
UNAUDITED
<CAPTION>
<S> <C> <C> <C> <C>
SUPPLEMENTAL DATA
AND RATIOS
Ratio Ratio of Portfolio Average
of Net net Turnover Commission
operating investment Rate
expenses income Paid
to (loss) to
Average average
Net net
Assets* assets*
(1)(2) (1)(2)
March 18,
1994 to
April 10,
1994 1.60% 5.12% 0.00%
April 30,
1995 1.19% 4.08% 24.65%
April 30,
1996 1.20% 3.58% 21.79%
May 1, 1996
to October
31, 1996
UNAUDITED
</TABLE>
*If the Fund had paid all of its expenses, the ratios would be as follows: Ratio
of Net operating expenses to Average Net Assets (), 2.91%, 1.19%, 1.20%, Ratio
of net investment income (loss) to average net assets (2), 3.81%, 4.08%, 3.58%,
(1) Total return assumes reinvestment of all dividends and distributions but
does not reflect any deductions for sales charges. The aggregate (not
annualized) total return is shown for periods less than one year. (2) For
periods less than one year, both the ratio of net operating expenses to average
net assets and the ratio of net investment income (loss) are calculated on an
annualized basis
<PAGE>
THE AAL BOND FUND
INVESTMENT OBJECTIVE
The AAL Bond Fund seeks a high level of current income, consistent with the
preservation of capital, by investing primarily in investment grade debt
securities. There is no assurance that the Fund will achieve its investment
objectives.
INVESTMENT POLICIES
Under normal circumstances, we will invest at least 65% of our total assets in:
(1) the debt securities of U.S. issuers, and the debt securities of foreign
issuers payable in U.S. dollars, which are rated within the four highest rating
categories by at least two Nationally Recognized Statistical Rating
Organizations ("NRSROs") when we buy them; and (2) securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, primarily
those securities supported by the full faith and credit of the U.S. Treasury. We
may also invest in:
privately issued or guaranteed mortgage-related securities that are in the four
highest categories of at least two NRSROs or, if unrated, equal to these ratings
as determined by the Adviser at the time of purchase;
commercial paper in the highest rating category by an NRSRO, or issued or
guaranteed by a corporation whose outstanding debt is in the two highest
categories by an NRSRO at the time of purchase;
bank obligations, including repurchase agreements, of banks having total assets
in excess of $1 billion; and
corporate obligations, including variable rate master notes, which are rated in
the two highest categories by an NRSRO, or issued by a corporation whose
outstanding debt has an equal or better rating at the time of purchase.
Although there are no restrictions on the maturity of the debt securities in
which we may invest, we will generally have a weighted average effective
maturity of between 5 and 10 years. We use the effective maturity of a debt
security in calculating weighted average effective maturity, which takes into
account projected prepayments, call dates, put dates and sinking funds, if any,
that reduce the stated maturity date on the bond.
We anticipate that during normal market conditions the average portfolio
maturity of the Fund will not exceed 20 years. We use the stated final maturity
date of a security in calculating average maturity, notwithstanding earlier call
dates and possible prepayments.
ADVISORY FEE
We pay the Adviser a fee based on the average daily net assets of the Fund. This
annual fee, shown below, is paid monthly:
0.55 of 1% on the first $250 million; 0.50 of 1% on the next $250 million; and
0.45 of 1% on assets over $500 million.
<PAGE>
PORTFOLIO MANAGER
Michael R. Hilt, CFA, has managed the day-to-day Fund investments since November
1, 1995. From April 1994 through August 1995, Mr. Hilt served as portfolio
manager and quantitative analyst for Conseco Capital Management, Inc. From
August 1992 through April 1994, he served as a portfolio manager and
quantitative analyst for PPM America, Inc. From June 1988 to August 1992, he
served as a portfolio analyst and trader for Sears Investment Management
Company, Inc. Mr. Hilt also manages The AAL Money Market Fund.
INVESTMENT FACTORS AND THE RISKS INVOLVED
The primary risk to your investment is the impact of interest rate changes on
the value of your investment. Interest rates are influenced by supply and demand
as well as economic monetary policies. If interest rates increase, the value of
your investment may decline. In periods of declining interest rates, the
opposite may be true.
Investing in a bond fund is not the same as buying an individual bond. Both
bonds and bond funds offer regular income. However, while individual bonds can
offer a fixed amount of regular income until maturity, a mutual fund bond
portfolio includes a constantly changing pool of bonds with differing interest
rates and maturities. Therefore, both share prices and dividends may fluctuate
in bond mutual funds.
For more information on risks see Additional Investment Factors and Risks on
page --.
We may invest in mortgage-backed securities that have amortizing payments
consisting of both interest and principal and prepayment privileges.
Mortgaged-backed securities represent interest in pools of mortgage loans made
by lenders such as savings and loan institutions, mortgage bankers, commercial
banks and others. These pools are combined for sale to investors (such as the
Fund) by various government, government-related and private organizations (i.e.
The Government National Mortgage Association ("GNMA") guarantees and issues
mortgage-backed securities). Mortgage- backed securities generally provide for a
"pass through" of monthly payments made by individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or guarantor of
the securities. The yield on these securities applies only to the unpaid
principal balance. We must reinvest the periodic payments of principal at
prevailing market interest rates, which may be higher or lower than the rate on
the original investment. In addition, the prepayment privilege may require us to
reinvest at lower yields than we received from the original investment. If we
buy these securities at a premium, any prepayments will be at par or stated
value, which will give us a lower return.
During periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities tend to accelerate. Accordingly, any prepayments on
mortgage-backed securities held by the Fund reduce our ability to maintain
positions in high-yielding, mortgage-backed securities and reinvest principal at
comparable yields.
<PAGE>
SUMMARY OF EXPENSES AND EXPENSE EXAMPLE
The purpose of this information is to assist you in understanding the various
costs and expenses that you may directly and indirectly incur with your
investment in the Fund. The tables show recurring and non-recurring Fund
expenses. Shareholder Transaction Expenses are based upon the maximum 4.75%
sales charge for Class A Shares which is reduced for purchases of $25,000 or
more, and the maximum 5.00% contingent deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
<TABLE>
<CAPTION>
<S> <C> <C>
------------------------------------------------------------------------------------------------ ------------- ------------
Shareholder Transaction Expenses Class A Class B
------------------------------------------------------------------------------------------------ ------------- ------------
Maximum sales charge imposed on purchases (as a percentage of offering price) 4.75% none
Maximum sales charge imposed on reinvested dividends none none
Maximum deferred sales charge none 5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.) none none
Exchange fee none none
Total 4.75% 5.00%
------------------------------------------------------------------------------------------------ ------------- ------------
</TABLE>
Operating expenses are expressed as a percentage of average net assets.
Percentages shown for management fees and 12b-1 distribution fees are the
maximum fees permitted under The AAL Mutual Funds Investment Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts incurred in the prior fiscal year. The Expense Example shows the
cumulative expenses attributable to a hypothetical $1,000 investment with an
annual return of 5% compounded annually, in each class for the years shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------ ------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net assets) Expense Example
------------------------------------------------------------------------ ------------------------------------------------------
--------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
Class A Class B Class A Class B Class B No
Redemption
--------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
--------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
Management Fee .55% .55% After 1 year $58 $68 $18
--------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
--------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
12b-1 Distribution and Service Fees .25% 1.00% After 3 Years $79 $86 $56
--------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
--------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
Other Expenses .21% .21% After 5 Years $102 $97 $97
--------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
--------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
Total Fund Operating Expenses 1.01% 1.76%% After 10 years $168 - -
--------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
<PAGE>
FINANCIAL HIGHLIGHTS
The audited Financial Highlights Table covers The AAL Bond Fund for the periods
shown and is based on a share of beneficial interest outstanding throughout the
applicable period. You should read the Table in conjunction with the Fund's
financial statements and related notes, all of which have been audited by Price
Waterhouse LLP, independent accountants. These, together with a more detailed
discussion and analysis of the Fund's performance, are contained in the Funds'
April 30, 1996 Annual Report, copies of which are available from the Distributor
without charge.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM INVESTMENT LESS DISTRIBUTIONS
OPERATIONS
NAV Net Net Total Dividends Distribution Total NAV: End Total Net
Start Investment Realized from from Net from net Dividends of Period return Assets at
of Income and Investment Investment realized and for end of
Period (loss) unrealized Operations Income Gain on Distributions Period Period
gain investments (1)
(loss)
on
Investments
July 116, 10 0.602 -0.36 0.242 -0.602 - -0.602 9.64 2.56% $20,9388,63
1987 to
April 30,
1988
April 30, 9.64 0.826 -0.255 0.571 -0.826 -0.055 -0.881 9.33 6.21% $54,006,123
1989
April 30, 9.33 0.806 -0.08 0.726 -0.806 0 -0.806 9.25 7.84% $94,937,997
1990
April 30, 9.25 0.772 0.51 1.282 -0.772 0 -0.772 9.76 14.34% $139,228,954
1991
April 30, 9.76 0.721 0.273 0.994 -0.721 -0.013 -0.734 10.02 10.47% $229,309,955
1992
April 30, 10.02 0.661 0.627 1.288 -0.661 -0.037 -0.698 10.61 13.22% $370,219,492
1993
April 30, 10.61 0.584 -0.66 -0.076 -0.584 -0.260 -0.844 9.69 -0.99% $442,962,54
1994
April 30, 9.69 0.58 -0.078 0.502 -0.58 -0.002 -0.582 9.61 5.47% $429,355,16
1995
April 30, 9.61 0.584 0.01 0.594 -0.584 0 -0.584 9.62 6.18% $430,846,686
1996
May 1, to
October
31, 1996
Unaudited
<CAPTION>
<S> <C> <C> <C>
SUPPLEMENTAL DATA
AND RATIOS
Ratio of Ratio Portfolio
Net of net Turnover
operating investment
expenses income
to (loss)
Average to
Net average
Assets* net
(2) assets*
July 116, 0.75% 8.67% 85.88%
1987 to
April 30,
1988
April 30, 0.83% 8.86% 54.49%
1989
April 30, 0.98% 8.38% 38.00%
1990
April 30, 1.00% 8.06% 6.39%
1991
April 30, 1.03% 7.19% 12.18%
1992
April 30, 1.03% 6.35% 26.12%
1993
April 30, 1.02$ 5.61% 27.75%
1994
April 30, 1.03$ 6.12% 44.57%
1995
April 30, 1.01% 5.89% 125.77%
1996
May 1, to
October
31, 1996
Unaudited
</TABLE>
*If the Fund had paid all of its expenses, the ratios would be as follows: Ratio
of Net operating expenses to Average Net Assets (2), 1.83%, 1.37%, 1.22%, 1.17%,
1.03%, 1.03%, 1.02$, 1.03$, and 1.01%, Ratio of net investment income (loss) to
average net assets (2), 7.59%, 8.32%, 7.89%, 8.13%, 7.19%, 6.35%, 5.61%, 6.12%,
and 5.89%, (1) Total return assumes reinvestment of all dividends and
distributions but does not reflect any deductions for sales charges. The
aggregate (not annualized) total return is shown for periods less than one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) are calculated
on an annualized basis
<PAGE>
THE AAL MUNICIPAL BOND FUND
INVESTMENT OBJECTIVE
The AAL Municipal Bond Fund seeks a high level of current income that is exempt
from federal income taxes, consistent with the preservation of capital, by
investing primarily in a diversified portfolio of municipal securities. There is
no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES
Under normal circumstances, we will invest at least 80% of our net assets in
municipal bonds, the income from which is exempt from federal income tax. At
least 75% of our investment in municipal bonds will be in the three highest
ratings assigned by at least one NRSRO when we buy them.
State and local governments and municipalities issue municipal bonds to raise
money for a variety of public purposes, including general financing for state
and local governments or financing for projects or public facilities. The
municipality may issue such securities in anticipation of future revenues from a
specific municipal project (revenue bonds), or backed by the full taxing power
of a municipality (general obligation bonds), or from the revenues of a specific
project on the credit of a private organization (industrial development bonds).
The interest paid on these bonds generally is exempt from federal income taxes.
We may invest 25% or more of our total assets in industrial development bonds.
We try not to invest more than 25% of our total assets in municipal bonds that
we feel are so closely related that an economic, business, or political
development affecting one bond could also affect the others. For more
information on municipal securities, refer to the SAI.
We can purchase certain bonds that are tax exempt but involve a private purpose.
These bonds are sometimes called AMT paper because their interest is subject to
the alternative minimum tax. We limit our purchases of this type of bond to 25%
of our total assets.
ADVISORY FEE
We pay the Adviser a fee based on the average daily net assets of the Fund. This
annual fee, shown below, is paid monthly:
0.55 of 1% on the first $250 million; 0.50 of 1% on the next $250 million;
and 0.45 of 1% on assets over $500 million.
<PAGE>
PORTFOLIO MANAGER
Duane A. McAllister, CFA, has managed the day-to-day investments of the Fund
since April 1994. Prior to joining AAL Capital Management Corporation, on
November 1, 1995, he managed the Fund while serving as vice president of Duff &
Phelps Investment Management Co. For the five-year period prior to managing the
Fund, Mr. McAllister managed portfolios for the Northern Trust Company and First
National Bank and Trust in Rockford, Illinois.
INVESTMENT FACTORS AND THE RISKS INVOLVED
A primary risk to your investment is the impact of interest rate changes on
the value of your investment. Interest rates are influenced by supply and demand
as well as economic and monetary policies. If interest rates increase, the value
of your investment may decline. In periods of declining interest rates, the
opposite may be true. Similarly, when interest rates are falling, any new money
we invest may be in investments that produce lower yields than the balance of
our portfolio, thereby reducing our yield. In periods of rising interest rates,
the opposite will be likely true. An additional risk to your investment is the
creditworthiness of the issuer.
Please remember that investing in a bond fund is not the same as buying an
individual bond. Both bonds and bond funds offer regular income. However, while
individual bonds can offer a fixed amount of regular income until maturity, a
mutual fund bond portfolio includes a constantly changing pool of bonds with
differing interest rates and maturity prices. Therefore, both share prices and
dividends may fluctuate in bond mutual funds.
You should remember that changes in federal income tax rates may affect both the
net asset value and the taxable equivalent interest of the Fund.
For more information on risks see Additional Investment Factors and Risks on
page --.
<PAGE>
SUMMARY OF EXPENSES AND EXPENSE EXAMPLE
The purpose of this information is to assist you in understanding the various
costs and expenses that you may directly and indirectly incur with your
investment in the Fund. The tables show recurring and non-recurring Fund
expenses. Shareholder Transaction Expenses are based upon the maximum 4.75%
sales charge for Class A Shares which is reduced for purchases of $25,000 or
more, and the maximum 5.00% contingent deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
<TABLE>
<CAPTION>
<S> <C> <C>
----------------------------------------------------------------------------------------------- ------------- ------------
Shareholder Transaction Expenses Class A Class B
----------------------------------------------------------------------------------------------- ------------- ------------
Maximum sales charge imposed on purchases (as a percentage of offering price) 4.75% none
Maximum sales charge imposed on reinvested dividends none none
Maximum deferred sales charge none 5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.) none none
Exchange fee none none
Total 4.75% 5.00%
----------------------------------------------------------------------------------------------- ------------- ------------
</TABLE>
Operating expenses are expressed as a percentage of average net assets.
Percentages shown for management fees and 12b-1 distribution fees are the
maximum fees permitted under The AAL Mutual Funds Investment Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts incurred in the prior fiscal year. The Expense Example shows the
cumulative expenses attributable to a hypothetical $1,000 investment with an
annual return of 5% compounded annually, in each class for the years shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------- ----------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net Expense Example
assets)
-------------------------------------------------------------------- ----------------------------------------------------------
---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
Class A Class B Class A Class B Class B No
Redemption
---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
Management Fee .55% .55% After 1 year $57 $68 $18
---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
12b-1 Distribution and Service .25% 1.00% After 3 Years $77 $84 $54
Fees
---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
Other Expenses .15% .15% After 5 Years $99 $94 $94
---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
Total Fund Operating Expenses .95% 1.70%% After 10 years $161
---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
<PAGE>
FINANCIAL HIGHLIGHTS
The audited Financial Highlights Table covers The AAL Municipal Bond Fund for
the periods shown and is based on a share of beneficial interest outstanding
throughout the applicable period. You should read the Table in conjunction with
the Fund's financial statements and related notes, all of which have been
audited by Price Waterhouse LLP, independent accountants. These, together with a
more detailed discussion and analysis of the Fund's performance, are contained
in the Funds' April 30, 1996 Annual Report, copies of which are available from
the Distributor without charge.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM INVESTMENT LESS DISTRIBUTIONS
OPERATIONS
NAV Net Net Total Dividends Distribution Total NAV: Total Net
Start Investment Realized from from from net Dividends End of return Assets
of Income and Investment Net realized and Period for at end
Period (loss) unrealized Operations Investment Gain on Distributions Period of Period
gain (loss) Income investments (1)
on
Investments
July 116, 10 0.398 -0.28 0.118 (0.3980 - -0.398 9.72 1.29% $10,031,478
1987 to
April 30,
1988
April 30, 9.72 0.599 0.02 0.619 -0.599 - -0.599 9.74 6.53% $41,217,745
1989
April 30, 9.74 0.608 -0.035 0.573 -0.608 -0.005 -0.613 9.70 5.93% $78,844,594
1990
April 30, 9.7 0.616 0.434 1.05 -0.616 -0.004 -0.62 10.13 11.12% $114,953,939
1991
April 30, 10.13 0.598 0.234 0.832 -0.598 -0.004 -0.602 10.36 8.39% $172,494,589
1992
April 30, 10.36 0.571 0.631 1.202 -0.571 -0.001 -0.572 10.99 11.84% $271,319,546
1993
April 30, 10.99 0.539 -0.41 0.129 -0.539 -0.02 -0.559 10.56 1.04% $370,568,847
1994
April 30, 10.56 0.523 (0.186 0.709 -0.523 -0.56 -0.579 10.69 7.01% $377,765,861
1995
April 30, 10.69 0.521 0.3 0.821 -0.521 -0.08 -0.601 10.91 7.74% $412,777,320
1996
May 1, to
October 31,
1996
Unaudited
<CAPTION>
<S> <C> <C> <C>
SUPPLEMENTAL DATA
AND RATIOS
Ratio of Net Ratio of net Portfolio
operating investment Turnover
expenses to income (loss)
Average Net to average
Assets *(2) net assets*
(2)
July 116, 1.50% 5.724 20.83%
1987 to
April 30,
1988
April 30, 0.94% 6.30% 29.24%
1989
April 30, 0.90% 6.13% 30.835
1990
April 30, 0.90% 6.21% 13.63%
1991
April 30, 0.955 5.81% 0.74%
1992
April 30, 1.00% 5.32% 3.41%
1993
April 30, 0.99% 4.87% 10.15%
1994
April 30, 0.98% 5.01% 172.49%
1995
April 30, 0.95% 4.695 130.52%
1996
May 1, to
October 31,
1996
Unaudited
</TABLE>
*If the Fund had paid all of its expenses, the ratios would be as follows: Ratio
of Net operating expenses to Average Net Assets (2), 2.285, 1.46%, 1.14%, 1.10%,
1.04%, 1.00%, 0.99%, 0.98%, and 0.95%, Ratio of net investment income (loss) to
average net assets (2), 4.95%, 5.79%, 5.89%, 6.01%, 5.72%, 5.32%, 4.87%, 5.01%,
and 4.695, (1) Total return assumes reinvestment of all dividends and
distributions but does not reflect any deductions for sales charges. The
aggregate (not annualized) total return is shown for periods less than one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) are calculated
on an annualized basis.
<PAGE>
THE AAL HIGH YIELD BOND FUND
INVESTMENT OBJECTIVE
The AAL High Yield Bond Fund seeks high current income and secondarily capital
growth by investing primarily in high risk, high yield bonds commonly referred
to as "Junk Bonds." We actively seek to achieve the secondary objective of
capital growth to the extent it is consistent with our primary objective of high
current income.
INVESTMENT POLICIES
Under normal circumstances, we invest at least 65% of the Fund's assets in a
diversified portfolio of high yield bonds. By high yield bonds, we mean debt
securities rated below investment grade by a Nationally Recognized Statistical
Rating Organization ("NRSRO"), such as Ba or lower by Moody's Investors
Services, Inc. ("Moody's") or BB or lower by Standard & Poor's Ratings Group
("S&P"), or, if unrated, of comparable quality as we determine. Please refer to
the Appendix for information on NRSROs and their credit ratings. We define high
yield bonds to include: fixed, variable, floating rate, and deferred interest
debt obligations; zero coupon bonds; pay-in-kind bonds; asset and
mortgage-backed debt obligations; structured debt obligations; and convertible
bonds. We may invest the remaining 35% of our total assets in any combination
of:
(1) additional high yield bonds; (2) investment grade bonds; (3) common and
preferred stocks (including structured preferred stock); and (4) securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
("U.S. Government Obligations").
We also invest up to 20% of our net assets in bonds of foreign issuers.
In evaluating the quality of a particular high yield bond for investment in the
Fund, we do not rely exclusively on ratings assigned by the NRSROs. In
appropriate circumstances, we may perform our own credit analysis as well. We
consider the issuer's: (1) financial resources; (2) operating history; (3)
sensitivity to economic conditions and trends; (4) management's abilities; (5)
debt maturity schedules; (6) borrowing requirements; and (7) relative values
based on anticipated cash flow, interest and asset coverages, and earnings
prospects. We attempt to identify those issuers of high yield bonds whose
financial condition is adequate to meet future obligations, has improved, or is
expected to improve in the future. However, we do not use a minimum level of
quality rating and may purchase and hold securities in default.
ADVISORY FEES
We pay the Adviser a fee based on the average daily net assets of the Fund. This
annual fee is at the rate of 0.60 of 1% and is paid monthly:
PORTFOLIO MANAGER
Dave Carroll, CFA, manages the day-to-day Fund investments. Prior to managing
the Fund he served as an analyst and trader for Cargill Financial Services from
August through September, 1996. From 1986 to August of 1996 he was a second vice
president and portfolio manager for Fortis Advisers, Inc.
<PAGE>
INVESTMENT FACTORS AND RISKS INVOLVED
Interest rate changes significantly impact upon the value of your bond fund
investment. Interest rates are influenced by supply and demand as well as
economic monetary policies. In general, bond prices rise when interest rates
fall, and vice versa. Longer-term bonds generally have more sensitivity to
interest rate changes than short term bonds to compensate for the risks
associated with holding the securities for a longer length of time. However,
investing in a bond fund is not the same as buying an individual bond. Both
bonds and bond funds offer regular income. While individual bonds can offer a
fixed amount of regular income until maturity, a mutual fund bond portfolio
includes a constantly changing pool of bonds with differing interest rates and
maturities. Therefore, both share prices and dividends may fluctuate in bond
mutual funds.
Although interest rate changes have a significant impact on the value of bonds
and bond fund investments, the primary risk of investing in the high yield
sector is the financial risk. Bonds rated below investment grade have greater
risks of default than investment grade bonds and, may in fact, be in default.
Issuers of high yield bonds usually do not have strong historical financial
conditions, requiring them to offer higher yields to compensate for the greater
risk of default on the payment of interest and principal. These bonds have
speculative characteristics or are speculative. As a result, their market values
have less sensitivity to interest rate changes on a short-term basis, but more
sensitivity to adverse economic developments or individual corporate
developments because of their lower credit quality. During an economic downturn
or period of rising interest rates, issuers of lower-rated bonds may have more
difficulty meeting their principal and interest payment obligations or obtaining
additional financing to make the interest payments on their debt. When issuers
have difficulty meeting projected goals or obtaining additional financing, the
default rate on high yield bonds will likely rise.
Frequently, high yield bonds have a less liquid resale market than the market
for investment grade bonds. In some cases, these bonds have no resale market at
all. As a result, we may have difficulty valuing portfolio securities, choosing
the securities to sell to meet redemption requests and/or selling or disposing
of portfolio securities on favorable terms. The securities in the portfolio may
experience large variations in price. In the event of an illiquid market or in
the absence of readily available market quotations for certain high yield bonds
in the Fund's portfolio, our judgment will play a greater role in the valuation
of such securities. Such adverse market or economic conditions could make it
difficult at times for us to sell or dispose of certain high yield bonds, and we
may have to sell these bonds at a significant loss to meet shareholders
redemptions.
The high yield market has in the past, and may in the future, experience market
risk due to adverse publicity and investor perceptions, whether or not based on
fundamental analysis, decreasing market values and liquidity, especially on the
lesser traded issues. In addition, there have been attempts in the past , by
Congress, to restrict the advantages of high yield bonds and similar attempts
could occur in the future.
Certain high yield bonds may carry particular risks. Zero coupon, deferred
interest and pay-in-kind ("PIK") bonds, which are issued at deep discounts, may
experience greater volatility in market value . Asset and mortgage-backed
securities, including collateralized mortgage obligations, in addition to
greater volatility, may carry prepayment risks. For more information on the
risks associated with these investments, please refer to the Statement of
Additional Information.
For more information on risks see Additional Investment Factors and Risks on
page --.
<PAGE>
SUMMARY OF EXPENSES AND EXPENSE EXAMPLE
The purpose of this information is to assist you in understanding the various
costs and expenses that you may directly and indirectly incur with your
investment in the Fund. The tables show recurring and non-recurring Fund
expenses. Shareholder Transaction Expenses are based upon the maximum 4.75%
sales charge for Class A Shares which is reduced for purchases of $25,000 or
more, and the maximum 5.00% contingent deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
<TABLE>
<CAPTION>
<S> <C> <C>
------------------------------------------------------------------------------------------------ ------------- ------------
Shareholder Transaction Expenses Class A Class B
------------------------------------------------------------------------------------------------ ------------- ------------
Maximum sales charge imposed on purchases (as a percentage of offering price) 4.75% none
Maximum sales charge imposed on reinvested dividends none none
Maximum deferred sales charge none 5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.) none none
Exchange fee none none
Total 4.75% 5.00%
------------------------------------------------------------------------------------------------ ------------- ------------
</TABLE>
Operating expenses are expressed as a percentage of average net assets.
Percentages shown for management fees and 12b-1 distribution fees are the
maximum fees permitted under The AAL Mutual Funds Investment Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts management expects to incur the current fiscal year including any
reimbursements. Without reimbursements, "other expenses" and "total fund
operating expenses" for the year ending April 30, 1997 are estimated at _____%
and _____%, respectively. The Expense Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment with an annual return of 5%
compounded annually, in each class for the years shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------- ----------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net assets) Expense Example
--------------------------------------------------------------------------- ----------------------------------------------------
-------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
Class A Class B Class A Class B Class B No
Redemption
-------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
-------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
Management Fee .60% .60% After 1 year
-------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
-------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
Rule 12b-1 Distribution and Service Fees .25% 1.00% After 3 Years
-------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
-------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
Other Expenses 1.00 1.00 After 5 Years NA NA NA
-------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
-------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
Total Fund Operating Expenses 1.85%% 2.60%% After 10 years NA NA NA
-------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
<PAGE>
THE AAL MONEY MARKET FUND
INVESTMENT OBJECTIVE
The AAL Money Market Fund seeks a high level of current income, consistent with
liquidity and the preservation of capital, by investing in a diversified
portfolio of high-quality, short-term money market instruments. There is no
assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES
To achieve our investment objective, we will invest in short-term money market
instruments. We will invest in:
Obligations issued or guaranteed by the U.S. government, its agencies, or
instrumentalities;
Certificates of deposit, bankers acceptances, and similar obligations of U.S.
banks, savings associations, foreign branches of U.S. banks, and domestic
branches of foreign banks, which have total assets of more than $1 billion when
we buy them, and who are members of the Federal Deposit Insurance Corporation
("FDIC");
Commercial paper which, when we buy it, is defined as "First Tier" or "Second
Tier" by the Investment Company Act of 1940, as long as no more than 5% of our
total assets are invested in Second Tier commercial paper; and
Corporate obligations, including variable rate master notes which, when we buy
them, are in one of the two highest categories of a NRSRO, or, if unrated,
issued by a corporation with outstanding debt which has an equivalent or better
rating at the time of purchase.
All of our investments will be consistent with Rule 2a-7 under the Investment
Company Act of 1940. As such, all of our investments will mature in 397 days or
less and the Fund will maintain a dollar-weighted average portfolio maturity of
not more than 90 days. By limiting the maturity of the Fund's investments, we
seek to lessen the changes in asset values caused by fluctuations in short-term
interest rates. We intend to maintain, to the extent practical, a constant net
asset value per share of $1.00.
In some instances, we may purchase variable rate securities (the yields will
vary in relation to changes in specific money market rates, such as the prime
rate) with actual maturities of 397 or more, but only under conditions
established by the Securities and Exchange Commission rules that permit such
securities to be considered to have maturities of less than 397 days. We intend
to invest in these longer-term variable rate securities only when, in our view,
we may be able to take advantage of the higher yield that is usually paid on
these securities over short-term securities, and it appears to us that the
variable rates on these securities may reduce the fluctuations in market value
typical of longer-term securities. We also may purchase variable rate securities
with a put option, which may further reduce the risk of fluctuations in market
value.
<PAGE>
We also may purchase participation interest in any securities in which the Fund
may invest. Participation interests are interests in securities held by others.
Investments in this Fund are neither insured nor guaranteed by the U.S.
government.
ADVISORY FEE
We pay the Adviser a fee based on the average daily net assets of the Fund. This
annual fee, shown below, is paid monthly:
0.50 of 1% on the first $500 million; and 0.45 of 1% on assets over $500
million.
PORTFOLIO MANAGER
Michael R. Hilt, CFA, has managed the day-to-day Fund investments since November
1, 1995. From April 1994 through August 1995, Mr. Hilt served as portfolio
manager and quantitative analyst for Conseco Capital Management, Inc. From
August 1992 through April 1994, he served as a portfolio manager and
quantitative analyst for PPM America, Inc. From June 1988 to August 1992, he
served as a portfolio analyst and trader for Sears Investment Management
Company, Inc. Mr. Hilt also manages The AAL Bond Fund.
INVESTMENT FACTORS AND THE RISKS INVOLVED
The primary risk to your investment in The AAL Money Market Fund is the effect
of falling interest rates on the Fund's yield. Although money market instruments
may have less price sensitivity to interest rate changes because of their short
durations, in periods of falling interest rates we may have to invest new money
in securities that produce lower yields than in the balance of the portfolio.
This will reduce the yield on the Fund. In periods of rising interest rates, the
opposite may be true.
For more information on risks see Additional Investment Factors and Risks on
page --.
<PAGE>
SUMMARY OF EXPENSES AND EXPENSE EXAMPLE
The purpose of this information is to assist you in understanding the various
costs and expenses that you may directly and indirectly incur with your
investment in the Fund. The tables show recurring and non-recurring Fund
expenses. Shareholder Transaction Expenses are based upon the 5.00% contingent
deferred sales charge for Class B Shares which is reduced by 1% for each year
the Class B Shares are owned. (Note that B Shares may only be acquired through
an exchange of other Class B Shares.)
<TABLE>
<CAPTION>
<S> <C> <C>
----------------------------------------------------------------------------------------------- ------------ ------------
Shareholder Transaction Expenses Class A Class B
----------------------------------------------------------------------------------------------- ------------ ------------
Maximum sales charge imposed on purchases (as a percentage of offering price) none none
Maximum sales charge imposed on reinvested dividends none none
Maximum deferred sales charge none 5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.) none none
Exchange fee none none
Total 4.75% 5.00%
----------------------------------------------------------------------------------------------- ------------ ------------
</TABLE>
Operating expenses are expressed as a percentage of average net assets.
Percentages shown for management fees and 12b-1 distribution fees are the
maximum fees permitted under The AAL Mutual Funds Investment Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts incurred in the prior fiscal year. The Expense Example shows the
cumulative expenses attributable to a hypothetical $1,000 investment with an
annual return of 5% compounded annually, in each class for the years shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------- ---------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average net Expense Example
assets)
--------------------------------------------------------------------- ---------------------------------------------------------
------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
Class A Class B Class A Class B Class B No
Redemption
------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
Management Fee .50% .50% After 1 year $9 $15 $65
------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
12b-1 Distribution and Service Fees .13% .88% After 3 Years $27 $47 $77
------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
Other Expenses* .20% .20% After 5 Years $46 $81 $81
------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
Total Fund Operating Expenses .83% 1.58% After 10 years $103 - -
------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
</TABLE>
The table reflects voluntary expense reimbursements by the Adviser for the
fiscal year ended April 30, 1996. Without these reimbursements "Other Expenses"
and "Total Fund Operating Expenses would have been .65% and 1.28% for Class A
Shares and .65% and 1.90% for Class B Shares. This expense example is for
comparison purposes only and is not a representation of the Fund's actual
expenses and returns, either past or future.
<PAGE>
FINANCIAL HIGHLIGHTS
The audited Financial Highlights Table ("table") covers The AAL Money Market
Fund for the periods shown and is based on a share of beneficial interest
outstanding throughout the applicable period. You should read the Table in
conjunction with the Fund's financial statements and related notes, all of which
have been audited by Price Waterhouse LLP, independent accountants. These,
together with a more detailed discussion and analysis of the Fund's performance,
are contained in the Funds' April 30, 1996 Annual Report, copies of which are
available from the Distributor without charge.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME FROM INVESTMENT LESS DISTRIBUTIONS
OPERATIONS
NAV Net Net Total Dividends Distribution Total NAV: Total Net
Start Investment Realized from from from Dividends End of Return Assets
of Income and Investment Net net and Period for at end
Period (loss) unrealized Operations Investment realized Distributions Period of Period
gain Income Gain (1)
(loss) on
on investments
Investments
March 10 $1.00 0.009 0 0.009 -0.009 0 -0.009 $1.00 0.91% $7,990,507
to April
30, 1988
April 30, $1.00 0.078 0 0.078 -0.078 0 -0.078 $1.00 8.10% $143,217,501
1989
April 30, $1.00 0.079 0 0.079 -0.079 0 -0.079 $1.00 8.24% $223,447,573
1990
April 30, $1.00 0.068 0 0.068 -0.068 0 -0.068 $1.00 7.07% $228,465,749
1991
April 30, $1.00 0.045 0 0.045 (0.045 0 -0.045 $1.00 4.54% $147,584,931
1992
April 30, $1.00 0.025 0 0.025 -0.025 0 -0.025 $1.00 2.53% $83,274,493
1993
April 30, $1.00 0.019 0 0.019 -0.019 0 -0.019 $1.00 1.95% $65,008,303
1994
April 30, $1.00 0.038 0 0.038 -0.038 0 -0.038 $1.00 3.92% $70,210,675
1995
April 30, $1.00 0.048 0 0.048 (0.048) 0 (0.048) $1.00 4.94% $116,014,091
1996
May 1, to
October
31, 1996
Unaudited
<CAPTION>
<S> <C> <C> <C>
SUPPLEMENTAL DATA
AND RATIOS
Ratio Ratio of Portfolio
of Net net Turnover
operating investment
expenses income
to (loss) to
Average average
Net net
Assets assets
8(2) 8(2)
March 10 0.07% 7.06% NA
to April
30, 1988
April 30, 0.76% 8.29% NA
1989
April 30, 1.04% 7.84% NA
1990
April 30, 1.07% 6.85% NA
1991
April 30, 1.11% 4.56% NA
1992
April 30, 1.13% 2.53% NA
1993
April 30, 1.26% 2.00% NA
1994
April 30, 1.17% 3.955 NA
1995
April 30, 0.83% 4.89% NA
1996
May 1, to
October
31, 1996
Unaudited
</TABLE>
If the Fund had paid all of its expenses, the ratios would be as follows: Ratio
of Net operating expenses to Average Net Assets (2): 1.76%,,1.18%,1.04%, 1.07%,
1.11%, 1.27%, 1.51%, 1.42%, and 1.28% Ratio of net investment income (loss) to
average net assets (2): 5.37%, 7.87%, 7.84%, 6.85%, 4.56%, %2.38%, 1.75%, 3.70%,
and 4.46% (1) Total return assumes reinvestment of all dividends and
distributions but does not reflect any deductions for sales charges. The
aggregate (not annualized) total return is shown for periods less than one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) are calculated
on an annualized basis
<PAGE>
ADDITIONAL INVESTMENT FACTORS AND RISKS REGARDING THE FUNDS
TEMPORARY DEFENSIVE PURPOSES
We have a temporary defensive position policy that allows us to invest up to
100% of our total assets in cash and short-term money market obligations,
including tax-exempt money market funds, and investment grade fixed-income
securities when significant adverse market, economic, political, or other
circumstances require immediate action to avoid losses. We primarily will
purchase the following types of securities for temporary defensive purposes:
Securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities;
Commercial paper rated at the time of purchase in the highest rating category by
NRSROs; and
Bank obligations, including repurchase agreements, of banks having total assets
in excess of $1 billion.
The AAL International Fund may invest up to 100% of its assets in U.S.
securities for temporary defensive purposes.
INTEREST RATE RISK
With respect to The AAL Bond, Municipal Bond, High Yield Bond and Money Market
Funds and, to some extent, The AAL Utilities Fund, you can be expected that a
decline in prevailing levels of interest rates generally will increase the value
of securities held in the portfolio, and an increase in interest rates generally
will reduce the value of those securities. As a result, interest rate
fluctuations will affect these Funds' net asset values, but not the income
received by the Funds from their existing portfolio securities. However, changes
in prevailing interest rates will affect the yield on subsequently purchased
securities. Because yields on the securities available for purchase by the Funds
will vary over time, we can not assure a specific yield on shares of the Funds.
INVESTMENT GRADE AND MEDIUM GRADE BOND INVESTMENTS
The AAL International, Utilities, Bond Municipal Bond and High Yield Bond Funds
may invest in investment grade bonds. A debt or other fixed-income security is
considered investment grade if it is rated investment grade by a NRSRO, such as
BBB or better by Duff and Phelps Credit Rating Co. ("D&P") and Standard & Poor's
Corporation ("S&P") or Baa or better by Moody's Investors Services, Inc.
("Moody's"). Securities rated in the fourth highest category, such as BBB by D&P
or S&P or Baa by Moody's, are considered medium grade bonds and are more
sensitive to economic changes than are securities rated in a higher category.
These medium-grade bonds have speculative characteristics. If a bond in a Fund
has lost its rating or has had its rating reduced, the Fund is not required to
sell the security, but the Adviser will consider such fact in determining
whether that Fund should continue to hold the bond.
<PAGE>
PORTFOLIO TURNOVER
We expect the AAL Mid Cap Stock, Small Cap Stock, Bond, High Yield Bond and the
Municipal Bond Funds to have portfolio turnover between 50% and 200%. We expect
the portfolio turnover for the other Funds to be less than 100%. No portfolio
turnover rate is calculated for The AAL Money Market Fund due to the short
maturities of its investments. Due to the high volume of buying and selling
activity in a portfolio with turnover in excess of 100%, the Fund may pay more
commissions and may realize more taxable gains than in portfolios with less
turnover, which may result in an increase in Fund expenses and lower returns for
shareholders. For more information on transaction expenses and taxes, please
refer to sections entitled "Portfolio Transactions," "Dividends, Distributions,
and Taxes," and "Yield and Performance Information."
REPURCHASE AGREEMENTS AND BORROWING
In order to earn income on available cash or for temporary defensive purposes we
may invest in repurchase agreements, We then require the Funds' Custodians to
hold an amount of cash or government securities at least equal to the market
value of the securities held pursuant to the agreement. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, there may be
delays and expenses in liquidating the securities, declines in their value and a
loss of interest.
Each Fund may borrow money, but only from banks and only for temporary or
emergency purposes. A Fund may not borrow more than 10% of its net assets and it
must repay any borrowing before it can buy additional securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
In order to help ensure the availability of suitable securities, the AAL
Utilities, International, Bond, Municipal Bond, High Yield Bond and Money Market
Funds may buy when-issued or delayed delivery securities, which are securities
purchased for future delivery at a stated price and yield. Generally, we will
not pay for these securities or start earning interest on them until we receive
them. We will not speculate in such securities, and we will expect to actually
acquire the securities when we buy them. However, we will sell such securities
before their settlement dates if we think it advisable.
LENDING PORTFOLIO SECURITIES
In order to generate additional income, we may from time to time lend securities
from our portfolios to brokers, dealers and financial institutions such as banks
and trust companies. A full explanation of lending portfolio securities, and the
restrictions thereon, is set forth in the SAI. We have no present intention of
lending portfolio securities.
<PAGE>
ILLIQUID AND RESTRICTED SECURITIES
We may hold up to 15% of a Fund's net assets in illiquid securities (securities
we believe cannot be disposed of within seven days in the normal course of
business at approximately the amount at which we have valued or priced the
securities), including securities acquired in private placements that have
restrictions on their resale ("restricted securities"). We deem time deposits
and repurchase agreements maturing in more than seven days illiquid. Because an
active market may not exist for illiquid securities, we may experience delays
and additional cost when trying to sell these securities. We may hold up to 10%
of the AAL Money Market Fund's net assets in illiquid and restricted securities.
For more information on illiquid and restricted securities regarding The AAL
Money Market Fund, please refer to the Statement of Additional Information,
"Privately Issued Securities: The AAL Money Market Fund."
The Funds, subject to the limitations for illiquid investments stated above, may
purchase restricted securities eligible for resale under Rule 144A under the
Securities Act of 1933 (the "Act"). The rule permits certain qualified
institutional buyers, such as the Funds, to trade in privately placed securities
that have not been registered under the Act. Rule 144A securities may or may not
be liquid depending upon the guidelines established by the Board of Trustees.
Institutional markets for restricted securities have developed as a result of
Rule 144A, providing both a readily ascertainable market value for these
securities and the ability to liquidate an investment to satisfy redemption
orders. An insufficient number of qualified institutional buyers interested in
purchasing these securities held by a Fund could adversely affect the
marketability of these securities and a Fund may not be able to sell them
promptly or at favorable prices.
FUTURES CONTRACTS AND OPTIONS
Except for The AAL Money Market Fund, we may engage in options, futures, and
options on futures, but only for bona fide hedging or other permissible risk
management purposes. Generally, we will not make these investments if the
initial margin deposits and premiums paid for unexpired options exceed 5% of a
Fund's total assets. In addition, we will not:
Commit more than 25% of a Fund's net assets to such instruments;
Commit more than 25% of a Fund's net assets to covered options; or
Commit more than 5% of a Fund's net assets to the premiums for put or call
options.
Our options transactions and short sale transactions only will consist of
techniques to hedge an unrealized gain on portfolio securities, such as:
(1) selling short against the box, which involves selling securities that a Fund
owns for delivery at a later date;
(2) the purchase of covered put options on portfolio securities, which allows a
Fund to sell securities to the writer (seller) of the option at a set price on
or before the expiration date of the option; or
(3) the sale of covered call options, which allows the holder of the options
written by a Fund to purchase securities at a set price before the expiration
date;
(4) and entering into closing transactions with respect to such options.
<PAGE>
If we sell a security short against the box, we may protect unrealized gains,
but will lose the opportunity to profit on such securities if the price rises.
When we purchase covered put options we will pay premiums for the options. We
also will receive premiums when we write covered call options. The premiums we
receive from writing covered call options may be completely or partially offset
by any declines in the prices of the underlying securities.
We also may purchase stock index options and write covered stock index options
and enter into closing transactions on these options.
We only will deal in exchange traded or over-the-counter options on securities
and stock indexes.
Our futures transactions may include instruments such as interest rate and index
futures contracts and options thereon. We may use futures transactions for
several reasons, including hedging unrealized portfolio gains, minimizing
adverse principal fluctuations in a Fund's debt and fixed-income securities, or
as a means of adjusting exposure to various markets.
Our ability to use futures and options transactions successfully depends upon
our skill in predicting the level and direction of the securities, options and
futures markets, interest rates and other factors. An incorrect prediction may
make the implementation of the hedging strategy in furtherance of the Fund's
investment objectives difficult. For example, significant differences may exist
between the securities and the options and futures markets that could result in
an imperfect correlation between them. Also, an incorrect prediction on the
changes in the level and direction of interest rates could cause the Fund to
have a lower return than it would have had if the Adviser had not attempted the
hedging transaction. In the absence of the ability to hedge, however, the
Adviser might take portfolio actions in anticipation of the same market
movements with similar investment results, but, presumably, at greater
transaction costs.
FOREIGN CURRENCY TRANSACTIONS
Foreign securities are subject to currency risk, that is, the risk that the U.S.
dollar value of these securities (and any income generated thereon) may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations. To manage this risk and facilitate the
purchase and sale of foreign securities, we may engage in foreign currency
transactions involving the purchase and sale of forward foreign currency
exchange contracts (agreements to exchange one currency for another at a future
date), or it may engage in transactions in options on foreign currencies,
currency futures contracts, or options on currency futures contracts. Although
foreign currency transactions will be used to protect against adverse currency
movements, they involve the risk that anticipated currency movements cannot be
accurately predicted and a Fund's total return could be adversely affected as a
result. Further information on foreign securities and currency transactions are
set forth in the Statement of Additional Information.
<PAGE>
RISKS OF INVESTING IN FOREIGN SECURITIES
CURRENCY RISK - A Fund's securities may be denominated or traded in foreign
currencies. Changes in the value of a foreign currency relative to the dollar
may change the dollar value of a Fund's holding(s). This means that the Net
Asset Value of a share of a Fund may go up or down as the value of a dollar
rises or falls compared to a foreign currency. Fund performance is measured in
U. S. dollars.
LIQUIDITY RISK - Trading volume on foreign exchanges may be less than that on
the New York or other domestic stock exchange. The lack of liquidity can affect
a Fund's ability to purchase or sell blocks of securities and obtain the best
price. Spreads between bid and asked prices may be greater and trading
interruptions or suspensions may be more common in foreign markets than on
domestic exchanges. Brokerage and other transaction costs may be higher in
foreign markets. Settlement practices may vary from country to country and
settlement periods for foreign securities may be longer than for domestic
securities. These differing practices may cause the loss of opportunities for
favorable purchases and the loss of interest income. Foreign securities may also
be traded on days that a Fund does not value its portfolio. This means that a
Fund's Net Asset Value can change on days in which a shareholder cannot access
his or her account. A Fund may incur costs associated with currency hedging and
the conversion of a foreign currency into U.S. dollars may be adversely affected
by restrictions on such conversion.
POLITICAL, ECONOMIC AND MARKET RISKS - The degree of political and economic
stability varies from country to country. Expropriation and/or nationalization
may cause a Fund to lose some or all of any particular investment. Individual
foreign economies may vary favorably or unfavorably from the U.S. economy in
such areas as growth of gross national product, rate of inflation, savings,
balance of payments and capital investment. These may affect the value of a
Fund's investment in any foreign country.
GOVERNMENTAL REGULATION - Foreign securities markets are not subject to the same
degree and type of laws and regulations that cover the U.S. markets. These
foreign markets may be more volatile and less liquid than the major U.S.
markets. Foreign governments may also impose restrictions on investments in
their capital markets as well as impose taxes or other restrictions on
repatriation of investment income.
NONUNIFORM CORPORATE DISCLOSURE STANDARDS - Information on publicly-traded
companies, banks and governments may be incomplete or unavailable in foreign
countries. The lack of uniform accounting standards and practices among
countries impairs the validity of direct comparisons of common valuation
measures, such as price/earnings ratios, as applied to securities of different
countries.
<PAGE>
INVESTMENT RESTRICTIONS
In addition to specific investment restrictions described in the SAI, only a
vote of the majority of the outstanding shares can change:
The investment objective of a Fund;
The policies on borrowing and lending securities;
The restriction on concentrating investments in a single industry, which limits
a Fund, except for The AAL Utilities Fund, from investing more than 25% of its
net assets in any single industry. This restriction does not apply to securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities
or the ability of the AAL Utilities Fund to invest in utilities; and
The restriction requiring issuer diversification by limiting a Fund from
investing more than 5% of its net assets in a single issuer, except that up to
25% of its net assets may be invested without regard to this limitation. This
restriction does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
With the exception of the investment policy requiring The AAL Municipal Bond
Fund to invest at least 80% of its net assets in municipal securities, which is
a fundamental policy, the Board of Trustees may change any of the Funds' other
investment policies without shareholder approval. For example, the Board of
Trustees may change the policies regarding specific investments, discussed above
(other than the policies on borrowing and securities lending). A description of
all of the investment restrictions applicable to the Funds is included in the
SAI.
<PAGE>
BOARD OF TRUSTEES
Our Board of Trustees* decides matters of general policy and reviews the
activities of the Adviser and the officers who conduct and supervise the daily
business operations of the Funds.
The Trustees, their business addresses and principal occupations during the past
five years are:
POSITION WITH THE FUNDS AND PRINCIPAL
NAME AND ADDRESS OCCUPATION
- ------------------------------------
John H. Pender** Trustee, and from 1987 through May 1996,
222 West College Ave. President of the Funds; Prior to 1996, Senior
Appleton, WI 54919 Vice President and Chief Investment Officer,
DOB 5/25/30 Aid Association for Lutherans
(fraternal benefit society) and prior to 1992,
Treasurer
F. Gregory Campbell Trustee; President of Carthage College,
2001 Alford Park Drive Kenosha, WI; Director, Kenosha Hospital
Kenosha, WI 53140 and Medical Center; Chairman, WI Assoc. of
DOB 12/16/39 Independent Colleges and Universities;
Board Member, Kenosha Area
Development; and Board Member, Prairie
High School
Richard L. Gady Trustee; and Vice President, Public Affairs
One Central Park Plaza and Chief Economist, ConAgra, Inc.
Omaha, NE 68102
DOB 2/28/43
D.W. Russler Trustee; Former Senior Vice President,
P.O. Box 84 Finance and Administration, NCR
Minocqua, WI 54548 Corporation 1984 - 1988; Director, Capital
DOB 10/28/28 Markets Assurance Corporation (reinsurance);
and Member, Advisory Board -- Saratoga
Partners II and III (corporate buy-
out limited partnerships)
Lawrence M. Woods Trustee; Former Executive Vice President
P.O. Box 1860 and Director, Mobil Oil Corp. (international
Worland, WY 82401 oil company)
DOB 4/14/32
Richard L. Gunderson** Trustee; Chairman of the Board of Directors
4321 North Ballard Road and Chief Executive Officer and from 1985
Appleton, WI 54919 through 1995, President, Aid Association for
DOB 6/14/33 Lutherans (fraternal benefit society);
Trustee, Lawrence University; and Director,
Banta Corp.
Ronald Anderson** Trustee, Sr. Vice President , CIO, Aid Association
4321 North Ballard Road for Lutherans, Vice President Finance General Re
Appleton, WI 54919 Corporation 1985 to 1991, Chairman, General Re
1995-1996 DOB Financial products, 1991-1996, Vice President
Corporate Development, General Re Corporation,
10/2/48
*All of the Trustees but Mr. Anderson are Directors of the AAL Variable
Product Series Fund, Inc. ** Denotes an "interested person" of the Funds as
defined in the Investment Company Act of 1940.
<PAGE>
MANAGEMENT OF THE TRUST
THE ADVISER
Under an Investment Advisory Agreement with the Trust, and subject to the
supervision of the Funds' Board of Trustees, the Adviser manages the investment
and reinvestment of the Funds' assets, provides the Funds with personnel,
facilities, and administrative services, and supervises the Funds' daily
business affairs. The Adviser formulates and implements a continuous investment
program for the Funds consistent with each Fund's investment objectives,
policies and restrictions.
The Adviser provides office space as well as executive and other personnel to
the Funds. In addition to investment advisory fees, each Fund incurs the
following expenses: legal, auditing, and accounting expenses; trustees' fees and
expenses; insurance premiums; brokers' commissions; taxes and governmental fees;
expenses of issuing and redeeming shares; organizational expenses; expenses of
registering or qualifying shares for sale; postage and printing for reports and
notices to shareholders; fees and disbursements of the Custodian and Transfer
Agent; certain expenses with respect to membership fees of industry
associations; and any extraordinary expenses, such as litigation expenses.
PORTFOLIO TRANSACTIONS
The Adviser directs the placement of orders for the purchase and sale of the
Funds' portfolio securities. In directing orders, the Adviser will consider a
number of factors to attain what it believes is the best combination of price
and execution for the Funds, including: when it believes that more than one
broker or dealer is capable of providing the best combination of price and
execution in a transaction, the Adviser normally will select a broker or dealer
who furnishes research services.
The Adviser may have other clients for which it is making investment and order
placement decisions similar to the funds. When making simultaneous purchases or
sales for the Funds and another client, if any, the Adviser's decisions could
have a detrimental effect on the price or volume of the securities purchased or
sold for the Funds. In other cases, simultaneous purchases or sales for the
Funds and another client could provide the Funds with the ability to participate
in volume transactions that could benefit the Funds.
BUYING SHARES IN THE FUNDS
The AAL Mutual Funds offer two classes of shares, Class A and Class B, which can
be purchased by mail or by wire transfer. The primary difference between the two
classes of shares offered is the sales charge structure and ongoing expenses,
which are summarized below.
Class A Shares. Class A shares of each Fund, except the AAL Money Market Fund,
are sold at net asset value plus a maximum sales charge of 4.75% of the public
offering price incurred at the time of purchase. As a result, Class A shares are
not subject to any charges when they are redeemed. The initial sales charge may
be reduced or waived for certain purchases as disclosed in the following table:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Sales Charge as a % of Sales Charge as a % of 50% Sales 50% Sales
Amount of Purchase Public Offering Price Net Amount Invested Charge as Charge as
% of P.O.P % of NAV
- ----------------------------------------------------------------------------------------------------------------
Less than $25,000..............4.75% 4.99% 2.38% 2.43%
$25,000 or more,
but less than $100,000.......4.50% 4.71% 2.25% 2.30%
$100,000 or more,
but less than $250,000.......3.50% 3.63% 1.75% 1.78%
$250,000 or more,*
but less than $500,000.......2.00% 2.04%* 1.00% 1.01%
$500,000 or more,
but less than $1,000,000.....0.50% 0.50% 0.25% 0.25%
$1,000,000 or more**...........0.00% 0.00%** 0.00% 0.00%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Purchases at this level must be for Class A shares.
** Registered Representatives may receive compensation not exceeding .25 of 1%
of amounts invested at this purchase level.
Reducing your Sales Charge. You may be eligible for a reduced sales charge on
the purchase of Class A shares. To qualify for any of these reductions, you must
tell us at the time of your purchase, or you may not receive the reduction.
Trustees, directors and employees of the Funds and the Adviser and Sub-Adviser,
as well as persons licensed to receive commissions for sales of The AAL Mutual
Funds, may not pay a sales charge on their purchases or on purchases made by
family members residing with them. We reserve the right to stop these reductions
at any time. We will notify you in advance of any changes. 50% Reduction -
Non-profit organizations, charitable trusts, charitable remainder unitrusts,
endowments AAL Branches and congregations pay only 50% of the normal sales
charge on Class A shares so long as there is a formal Lutheran affiliation. This
does not apply to 403(b)(7) Retirement Plan Accounts. Rights of Accumulation All
shares, Class A and Class B, purchased by you and your family who live with you
can be combined when computing your sales charge for Class A shares. This
includes individual, joint tenant, gift/transfer to minor, trust, and IRA
registrations. Employer-sponsored retirement plan accounts are combined with
other participants in the those plans. Rights of Accumulation includes the value
of all Class A shares at the public offering price, all Class B shares, and
reinvested dividends and capital gains.
<PAGE>
Letter of Intent - If you expect to invest $25,000 or more during the next 13
months, you can reduce your sales charge now on Class A shares by signing a
Letter of Intent. The Letter of Intent can be fulfilled by either purchases of
Class A (except the Money Market Fund) or Class B shares, although Class A
shares will only receive the reduced sales charge. By backdating a Letter of
Intent you can include prior purchases made in the last 90 days, however sales
charges on those shares will not be recalculated. The Transfer Agent will escrow
shares totaling 5% of the investment goal and will sell shares to cover any
additional sales charges due, if for some reason you do not fulfill the Letter
of Intent within the 13-month period. Only one Letter of Intent should be signed
for all accounts combined under Rights of Accumulation. A Letter of Intent is
not feasible for 403(b)(7) Retirement Plan Accounts, SEP-IRAs, Simple accounts
or SARSEP-IRAs since they are combined for Rights of Accumulation with the other
participants in their respective plans.
You are not obligated to buy any additional shares. If for any reason you change
your mind, the sales charges will be recalculated and charged at the rate
applicable without the Letter of Intent. The Transfer Agent will escrow shares
totaling 5% of the investment goal and will sell shares to cover any additional
sales charges due.
You can backdate a Letter of Intent to include shares purchased within the last
90 days. However, the sales charges on these shares will not be recalculated.
During the 13-month period, purchases in accounts that have been linked for the
Rights of Accumulation, and are still owned, will count toward the Letter of
Intent.
To complete your Letter of Intent you must have the full amount invested, valued
at your purchase cost before the 13-month period ends.
The AAL Money Market Fund shares do not apply toward your Letter of Intent,
unless you paid a sales charge and exchanged into The AAL Money Market Fund.
You cannot use a Letter of Intent for 403(b)(7) Retirement Plan Accounts,
SEP-IRAs, or SARSEP-IRAs.
Class B Shares. Class B shares of each Fund, except the AAL Money Market Fund,
are sold at net asset value with no initial sales charge at the time of
purchase. However, you may be subject to a contingent deferred sales charge
(expressed as a percentage of the lesser of the current net asset value or
original cost) of up to 5% if you redeem shares within five years after
purchase. There is no contingent deferred sales charge on shares you acquire
through the reinvestment of dividends and capital gains. Each time you redeem
shares from a fund, shares that have not been subject to the contingent deferred
sales charge or with the lowest contingent deferred sales charge will be
redeemed first to reduce your cost. The contingent deferred sales charge may be
waived upon the redemption of shares following the death or disability of a
shareholder, or to meet certain retirement plan requirements. The amount of the
contingent deferred sales charge may also be reduced dependent upon the number
of years from the purchase of Class B shares until the sale of those shares
according to the following table:
<PAGE>
Contingent Deferred Sales Charge
Years after Purchase on Shares being Sold
- --------------------------------------------------------
1st year 5.00%
- -------------------------------------------------
2nd year 4.00%
- -------------------------------------------------
3rd year 3.00%
- -------------------------------------------------
4th year 2.00%
- -------------------------------------------------
5th year 1.00%
- -------------------------------------------------
After 5th year 0.00%
- -------------------------------------------------
The sales charge is based upon the lesser of the net asset value of the shares
subject to the Contingent Deferred Sales Charge at either the time of purchase
or the time of sale.
B Shares are generally not suitable for investors who can elect the 50%
reduction in the Class A sales charge or for investors with $100,000 or more.
Class B Money Market Fund shares may only be acquired by exchange of other B
shares.
The contingent deferred sales charge is waived for the heir or beneficiaries of
a deceased shareholder for mandatory or hardship distributions from retirement
plans, IRAs and 403(b) plans.
Conversion to Class A Shares. Class B shares will automatically convert to Class
A shares six years after the purchase date, thus reducing future annual
expenses. Class B shares provide the benefit of putting all of the investor's
dollars to work from the time the investment is made, but (until conversion)
will have a higher expense ratio, pay lower dividends, and have a lower net
asset value than Class A shares due to the higher 12b-1 and service fee.
Therefore, it is very important to consider the amount and intended length of
time of your investment when determining which class of shares is most
beneficial for you. In general, if you are making a large investment, thus
qualifying for a reduced sales charge, you might consider Class A shares. If you
are making a smaller investment, you might consider Class B shares because 100%
of your purchase is invested immediately. Your AAL Capital Management
Corporation Registered Representative is always available to help you make the
best investment decision for your specific financial needs. If you do not know
the name of your Registered Representative, please call the Mutual Fund Service
Center toll free at 800-553-6319. The Telecommunications Device for the Deaf
(TDD) is 800-684-3416.
<PAGE>
Reinstatement Privilege - If within 60 days after you sell Class A shares, you
decide to reinvest those dollars back into the same account, you may do so
without incurring a sales charge . You can reinvest as much as you would like up
to the dollar amount of the redemption proceeds you received. The reinstatement
privilege can only be used one time per account. Our Transfer Agent must receive
your check and written request within the 60 days since your redemption was
made. Once your request is received shares will be purchased at the next price
available without a sales charge.
PURCHASE PRICE
You buy shares of The AAL Capital Growth, Mid Cap Stock, Small Cap Stock,
Utilities, International, Bond, Municipal Bond, and High Yield Bond Funds at the
public offering price, which is the net asset value plus a sales charge. You buy
shares of The AAL Money Market Fund at net asset value without a sales charge.
The purchase price of each Fund is based on the net asset value that is
determined on the business day the Transfer Agent receives your order in proper
form. On the record date for a distribution by The AAL Capital Growth, Mid Cap
Stock, Small Cap Stock, International and Utilities Funds, the share price is
reduced by the amount of the distribution. If you buy shares just before the
record date ("buying a dividend"), you will pay the full price for shares and
then receive a portion of the price back as a taxable distribution.
MINIMUM PURCHASE AMOUNT
PER ACCOUNT PER TRANSACTION
Minimum Purchase Amount per Account per Initial Purchase Additional Purchase
Transaction
Regular Account $1,000 $50
IRA $250 $50
Automatic Investment Plan 0 $25
Letter of Intent (over a 13 month period) $25,000
We may waive the minimum investment amount needed to open or add to an account
for certain employer-sponsored accounts.
OPENING A NEW ACCOUNT
Your AAL Capital Management Corporation Registered Representative is ready to
help you open a new account. If you do not know the name of your Registered
Representative, please call the Mutual Fund Service Center at 800-553-6319. The
Telecommunications Device for the Deaf (TDD) is 800-684-3416.
To open your account, just follow these steps:
1. After reviewing this prospectus, complete an AAL Mutual Funds Application for
every different account registration. For example, you need separate
applications for an individual account in The AAL Bond Fund and an IRA invested
in The AAL Bond Fund. If you don't complete the application properly, your
purchase may be delayed or rejected. You must also designate whether you are
purchasing Class A shares or Class B shares.
<PAGE>
2. Make your check payable to the Fund you are buying, for example, "The AAL
Bond Fund." If you are buying more than one Fund, make your check payable to
"THE AAL MUTUAL FUNDS." DO NOT make your check payable to AAL or AAL Capital
Management Corporation; and
3. Mail your completed application and check to:
The AAL Mutual Funds
222 West College Avenue
P.O. Box 8004
Appleton, WI 54913-8004.
BUYING SHARES FOR THE FIRST TIME BY WIRE
If your bank is a member of or has a corresponding relationship with a member of
the Federal Reserve System, you can buy shares of the Funds by wire transfer by
following steps:
1. Call AAL Capital Management Corporation at 800-553-6319 and provide the
following information:
Your account registration;
The name of the Fund(s) in which you want to invest and whether you wish to buy
A or B shares;
Your address;
Your Social Security or tax identification number;
The dollar amount;
The name of the wiring bank; and
The name and the telephone number of the person at your bank we can contact
about your purchase.
We must receive your wire order before the closing of the NYSE (normally 3:00
p.m. Central Time) to receive that day's price;
2. Tell your bank to wire your funds as follows:
Firstar National Bank
ABA No. 075000022
For Credit to Firstar Trust Company
Acct. No 112-952-137
For Further Credit to (name of specific AAL Mutual Fund) Account Registration
(name(s) of the shareholders(s)); and
<PAGE>
3. Complete The AAL Mutual Funds application and mail it immediately to:
The AAL Mutual Funds
222 West College Ave.
P.O. Box 8004
Appleton, WI 54913-8004.
ACCOUNT REGISTRATION
How you register your account with us can affect your legal interests as well as
the rights and interests of your family and beneficiaries. You should always
consult with your legal and/or tax adviser to determine the account registration
that best meets your needs. You must clearly identify the type of account you
want on your AAL Mutual Funds application form. Some account registrations may
require additional documents.
ACCOUNTS FOR RETIREMENT SAVINGS
AAL members, their enterprises, and Lutheran organizations may establish their
own individual or business retirement plans. These accounts may offer you tax
advantages. You should consult with your legal and/or tax adviser before you
establish a retirement plan.
Your AAL Capital Management Corporation Registered Representative will provide
you with all the materials, documents, and forms you need, and will work with
you in establishing your retirement plan from among these choices:
Regular IRA (Individual Retirement Account);
"Rollover" IRA;
SEP-IRA (Simplified Employee Pension Plan);
SARSEP (Salary Reduction Simplified Employee Pension Plan) No new plans may
start after 1996 but existing plans may continue;
403(b)(7) Retirement Plan Account (Legal restrictions apply to your ability to
withdraw funds from this account); and
Qualified Retirement Plans.
PRESTIGE ACCOUNT
Investors who maintain account balances totaling $50,000 or more will be
provided with additional benefits including personal attention from Prestige
Account representatives, an exclusive toll-free number, personalized investment
analysis, complimentary financial information, a Prestige Account organizer, and
more. Your AAL Capital Management Corporation Registered Representative can
provide you with more detailed information.
<PAGE>
BUYING ADDITIONAL SHARES FOR YOUR ACCOUNT
After you have opened an account with The AAL Mutual Funds, you can make
additional investments of $50 or more per account by mail, telephone, or wire.
Please put your name and your AAL Mutual Fund Account number on the face of all
investment checks, and make sure your checks are payable to the specific Fund in
which you are investing (for example, "The AAL Bond Fund"). If you are investing
in more than one Fund, make your check payable to "The AAL Mutual Funds." DO NOT
make your check payable to AAL or AAL Capital Management Corporation. Some
retirement accounts, such as the 403(b)(7) Retirement Plan, may allow you to
make investments only by deferring part of your salary.
BY MAIL
REGULAR MAIL: EXPRESS MAIL/PRIVATE DELIVERY:
The AAL Mutual Funds The AAL Mutual Funds c/o Firstar Trust Company c/o Firstar
Trust Company 615 East Michigan Street Mutual Funds Services, Third Floor P.O.
Box 2981 615 East Michigan Street Milwaukee, WI 53201-2981 Milwaukee, WI 53202
BY WIRE
Follow the directions listed under "Buying Shares for the First Time By Wire" on
page ___.
BY TELEPHONE
Before you can buy additional shares by telephone, you must have selected the
Request for Telephone Purchase option. Once you have selected this option, you
can call us and we will withdraw money from your bank checking or savings
account to make your investment. The price you pay for your shares will be the
next price we compute after we receive your investment from your bank, which is
usually three business days after you authorize the transfer. If you need to
invest sooner, you should consider making your purchase by bank wire.
AUTOMATIC INVESTMENT PLANS
To make regular investing more convenient, you can open an automatic investment
plan with no initial investment and a minimum of $25 per account per transaction
after you start your plan.
Your AAL Capital Management Corporation Registered Representative is ready to
help you set up one of these plans:
THE BANK DRAFT PLAN allows you to make regular investments in The AAL Mutual
Funds directly from your checking or savings account. The following rules and/or
guidelines apply:
<PAGE>
You can select up to two transaction dates per month (at least 10 days apart).
If you don't select the date(s), the funds will automatically be withdrawn from
your bank account on the 5th of the month;
To start the plan, or change your bank account, you must notify us in writing at
least 13 business 15 days prior to the transaction date. All bank account owners
must sign the bank draft plan card;
To stop or change the amount of your plan, you must tell us at least 5 business
days prior to the transaction date; and
Be sure you have enough money in your bank account to make the investment so you
can avoid paying any possible fees from your bank or the Transfer Agent.
THE CAPITAL BUILDER PLAN allows you to transfer money every month from your AAL
Money Market Fund account into another AAL Mutual Fund. The following rules
and/or guidelines apply:
You can select the transaction date. If you don't select the date, it will
automatically be withdrawn from your account on the 15th of the month;
To start the plan, you must notify us in writing at least 24 hours prior to the
transaction date. You must have all account owners sign the Capital Builder Plan
Card; and
To stop or change the amount of your plan, you must tell us at least 24 hours
prior to the transaction date.
THE PAYROLL DEDUCTION SAVINGS AND INVESTMENT PLAN allows employees of AAL,
employees of Lutheran-affiliated institutions, and Lutheran employees whose
employers agree to invest in The AAL Mutual Funds through direct deduction from
their paychecks or commission checks.
THE GOVERNMENT ALLOTMENT PLAN allows Lutheran social security recipients,
federal employees and military personnel to invest in The AAL Mutual Funds
through direct deduction from their paychecks.
Using The AAL Mutual Funds' Automatic Investment Plans, you may implement a
strategy called DOLLAR COST AVERAGING. Dollar cost averaging involves investing
a fixed amount of money at regular intervals. By investing the same amount
periodically, you will be purchasing more shares when the price is low and fewer
shares when the price is high. Dollar cost averaging does not ensure a profit or
protect against a loss during declining markets. Because such a program involves
continuous investment regardless of changing share prices, you should consider
your ability to continue the program through times when the share prices are
low.
<PAGE>
ADDITIONAL INFORMATION ABOUT BUYING SHARES
EARNING INCOME
You begin earning income, if any, on your shares on the business day following
the day that our Transfer Agent receives your payment.
PURCHASES
Your purchase must be in U.S. dollars, and your check must be drawn on a U.S.
bank. We do not accept cash or travelers checks. If your check does not clear,
we will cancel your purchase and hold you liable for any losses or applicable
fees. When you buy shares by check, you may not be able to receive a redemption
payment on those shares should you redeem them until your check has cleared,
which may take up to 12 days.
CONFIRMATION
We will generally mail written confirmation of your purchases in the Funds,
except for The AAL Money Market Fund, within two business days following the
date of your purchase. We will mail confirmation of additional purchases in The
AAL Money Market Fund monthly. We will mail confirmation of your automatic
investment plan purchases at least quarterly.
SHARE CERTIFICATES
We will issue you share certificates only upon written request, and then only
for full shares. You must make a new written request for a share certificate
each time you purchase shares. We do not charge a fee to issue share
certificates. If you have asked for or have received share certificates, you
cannot use certain shareholder services, including wire and check redemption,
share exchange, and any systematic withdrawal. Before you can redeem, transfer,
or exchange your shares, you must deliver the share certificates to the Transfer
Agent in negotiable form. Share Certificates may not be available for some
retirement accounts.
OTHER INFORMATION
The U.S. Postal Service or private delivery services are not agents of The
Funds, the Distributor, or the Funds' Transfer Agent. We do not legally receive
your purchase application or your request for redemption when you deposit them
in the mail, send them with a private delivery service, or when you deposit them
in our Post Office Box. We must have physical possession of your request for it
to be considered received. For purposes of delivery requirements other than for
purchases or sales or the Funds, current law will determine the legal effect of
posting for deadline purposes. For example, any IRS rule governing the posting
date deadline for the establishment of or contribution to an Individual
Retirement Account would govern whether you will receive the desired tax
treatment, regardless of when we are legally considered to have received your
purchase application for purposes of purchasing the Funds.
<PAGE>
We reserve the right to suspend the offering of shares for a period of time. We
also reserve the right to reject any specific purchase of shares.
SELLING (REDEEMING) YOUR SHARES
You can sell your shares on any business day. When you sell your shares you
receive the net asset value per share. If we receive your request in good order
before the close of the NYSE (normally 3:00 p.m. Central Time) you will receive
that day's price. If we receive your redemption request in good order on a
holiday, weekend, or a day the NYSE is closed, we will process your transaction
on the next business day. You can sell shares several ways.
BY MAIL
Please include the following in your redemption request:
Name(s) of the account owner(s);
Account number(s);
Amount you want to receive or the number of shares you want to sell; (For a B
Share redemption we will redeem any additional shares required for the CDSC in
order to comply with your request for a specific amount.)
Tax withholding information, if required, for retirement accounts; and
Signatures of all account owners.
YOU MUST HAVE YOUR SIGNATURE GUARANTEED IF:
1. You want to sell shares with a value of more than $25,000;
2. You want the proceeds sent to an address other than the one listed for your
account;
3. You want the check payable to someone other than the account owner(s); or
4. You hold share certificates (you must return the signed certificates with
your request).
You can usually obtain a signature guarantee at commercial banks, trust
companies, or broker dealer. A SIGNATURE GUARANTEE IS NOT THE SAME THING AS A
NOTARIZED SIGNATURE. Accounts held by a corporation, trust, estate,
custodianship, guardianship, partnership or pension and profit sharing plan may
require more documentation.
<PAGE>
Mail to:
REGULAR MAIL: EXPRESS MAIL/PRIVATE DELIVERY:
The AAL Mutual Funds The AAL Mutual Funds c/o Firstar Trust Company c/o Firstar
Trust Company 615 East Michigan Street Mutual Funds Services, Third Floor P.O.
Box 2981 615 East Michigan Street Milwaukee, WI 53201-2981 Milwaukee, WI 53202
BY TELEPHONE
In order to make investing in The AAL Mutual Funds more convenient, you are
allowed to buy, sell or exchange shares by telephone. We have established
reasonable procedures to protect against anyone who attempts to use the
telephone transaction service fraudulently. Please be aware, however, that The
AAL Mutual Funds, AAL Capital Management Corporation, the Custodian, the
Transfer Agent or any of their employees will not be liable for losses suffered
by you that result from following telephone instructions reasonably believed to
be authentic after verification pursuant to these procedures; and once a
Telephone Request has been made, it can't be canceled or modified! During
periods of extreme volume caused by dramatic economic or stock market changes,
or when the telephone system is not fully functional, you may have difficulty
reaching AAL Capital Management Corporation by telephone, and telephone
transactions may be difficult to implement at those times. The Funds reserve the
right to temporarily discontinue or limit the telephone purchase, redemption or
exchange privileges during such periods.
The following rules and/or guidelines for selling by telephone apply:
You must call the Mutual Fund Service Center at 800-553-6319;
You must provide a form of personal identification to confirm your identity;
You can sell up to $25,000 worth of shares;
We will mail a check only to the person(s) named on the account registration,
and only to the address on the account;
Retirement plan accounts are not eligible;
You cannot sell shares in certificate form by telephone;
You can do only one telephone redemption within any 30-day period for each
authorized account;
Telephone redemptions are not available if the address on the account has been
changed in the preceding 60 days; and if we receive your request in good order
before the close of the NYSE (normally 3:00 p.m. Central Time), you will receive
that day's price.
<PAGE>
BY WIRE
The following rules and/or guidelines for selling by wire apply:
You must give us written authorization, including the signatures of all the
owners of the account, on The AAL Mutual Funds Application or Change Form;
You can make a wire redemption for any amount;
You pay a $10.00 fee for each wire redemption;
We must receive your request in good order before the close of the NYSE
(normally 3:00 p.m. Central Time) for you to receive that day's price; and wire
redemptions may not be available to you for all retirement account plans.
SYSTEMATIC WITHDRAWAL PLAN (usually only appropriate for A Shares)
You can have money automatically withdrawn from your mutual fund account on a
regular basis by using our Systematic Withdrawal Plan. This plan allows you to
receive funds or pay a bill at regular intervals. The following rules and/or
guidelines apply:
You need a minimum of $5,000 in your account to start the plan;
You can select the date(s) on which the money is withdrawn. If you don't select
the date(s), your funds will automatically be withdrawn from your account on the
15th of the month:
To start the plan or change the payee(s), you must notify us in writing at least
13 business 15 days prior to the first withdrawal. You must have all account
owner(s) sign the appropriate form;
To stop or change your plan, you must notify us at least 5 business days prior
to the next withdrawal; and because of sales charges, you must consider
carefully the costs of frequent investments in and withdrawals from your
account.
THE AAL MONEY MARKET FUND CHECKS (A shares only)
You can write checks on your AAL Money Market Fund account, if you complete a
check writing signature card and agreement. You can request checks on your
mutual funds application or in writing. There is no charge for your first set of
checks. For each additional packet of checks, there is a $2.00 charge. The
following rules and/or guidelines apply:
<PAGE>
AAL Money Market Fund checks must be for at least $500. Because the Fund is not
a bank, some features such as stop payment are not available;
The Transfer Agent may impose reasonable fees for each check that is returned;
The Transfer Agent does not return your canceled checks to you. For a fee, the
Transfer Agent will send you a copy of your check at your request;
Unless they were purchased by bank wire, you must wait 12 days after you
purchase AAL Money Market Fund shares in order to write checks against that
purchase; and
You need a written request--NOT A CHECK--to close an AAL Money Market Fund
account. Your written request will require a signature guarantee to close
accounts over $25,000.
CLOSING SMALL ACCOUNTS
All AAL Mutual Funds account owners share the high cost of maintaining accounts
with low balances. To reduce this cost, we reserve the right, subject to state
law, to close an account when, due to a redemption, its value is less than $250.
This does not apply to retirement plan accounts. We will notify you in writing
before we close any account, and you will have 30 days to add money to bring the
balance up to $250.
REINSTATEMENT PRIVILEGE
You have 60 days after you sell shares to reinvest the dollar amount you
redeemed without having to pay another sales charge. You will pay the net asset
value per share as of the day your reinvestment is made and not the net asset
value as of the day you sold. The following rules and/or guidelines apply:
You may use this privilege only ONCE per account;
You must send a written request and a check for the amount you wish to reinvest
to our Transfer Agent:
REGULAR MAIL: EXPRESS MAIL/PRIVATE DELIVERY:
The AAL Mutual Funds The AAL Mutual Funds c/o Firstar Trust Company c/o Firstar
Trust Company 615 East Michigan Street Mutual Funds Services, Third Floor P.O.
Box 2981 615 East Michigan Street Milwaukee, WI 53201-2981 Milwaukee, WI 53202;
The dollar amount you reinvest cannot exceed the dollar amount you sold; and
The sale of your shares may be a taxable event despite the reinstatement.
EXCHANGE PRIVILEGE
After you have paid the initial sales charge, you may exchange shares in an AAL
Mutual Fund for shares in another AAL Mutual Fund without paying any additional
sales charge. The following rules and/or guidelines apply: Minimum investment
rules may apply when you open a new account by exchanging shares, and you may
have to submit a new application;
<PAGE>
Exchanges must be within the same class of shares, that is, A shares for A
shares B shares for B shares.
You may only exchange into funds that are legally available for sale in your
state;
You may have a taxable gain or loss as a result of an exchange;
We reserve the right to end this privilege if you make more than 12 exchanges in
a year;
We reserve the right to change or end this privilege upon 60 days notice, or
suspend this privilege without notice when economic or market changes make it
difficult to carry out such transactions; and
If you have share certificates, you need to sign the certificates, have your
signature guaranteed, and return the certificates with your request.
BY MAIL
Please include the following in your request:
Name(s) of the account owner(s);
Account number(s);
Amount of shares (or dollar amount) you want to exchange; and
Signatures of all account owners.
BY TELEPHONE
The guidelines for exchanging by telephone are:
You can exchange shares by calling the Mutual Fund Service Center at
800-553-6319;
When you call us, you will be asked for a form of personal identification to
confirm your identity; and if we receive your request, in good order, before the
close of the NYSE (normally 3:00 p.m. Central Time), you will receive that day's
price.
NET ASSET VALUE (NAV)
We compute the net asset value of a Fund share by adding up the value of the
individual Fund's assets, subtracting the Fund's liabilities, and dividing the
balance by the total number of shares outstanding. We compute the net asset
value at the end of the day after trading on the NYSE closes (normally 3:00 p.m.
Central Time). We do not calculate the net asset value on the days that the NYSE
is not open.
<PAGE>
Securities owned by a Fund are valued at current market value. When market
quotations are readily available, that quotation generally will be used. If a
quotation is not available, securities will be valued as determined in good
faith by or under the direction of the Board of Trustees. The Board of Trustees
may approve the use of pricing services to assist us in the determination of net
asset values.
All securities held by The AAL Money Market Fund and money market instruments
with a remaining maturity of 60 days or less held by the other Funds will be
valued on an amortized cost basis. We will comply with SEC requirements for the
use of this valuation method. For The AAL Money Market Fund, this method of
calculation facilitates, but does not assure, maintaining a constant net asset
value of $1.00 per share.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
The Internal Revenue Code refers to mutual funds as "regulated investment
companies" and exempts them from paying income taxes if they meet certain
requirements. Each Fund intends to comply with all of these requirements in
order to be considered a regulated investment company. We will annually provide
you with full information on dividends and capital gains distributions for each
Fund.
The following is a general description of the distribution policies and some of
the tax consequences for shareholders of the Funds. You should always check with
your tax adviser to determine whether any dividends and distributions paid to
you by a Fund are subject to any taxes, including state and local taxes.
THE AAL SMALL CAP STOCK, MID CAP STOCK, CAPITAL GROWTH, INTERNATIONAL,
UTILITIES, BOND, HIGH YIELD BOND and MONEY MARKET FUNDS
The dividends from net investment income of each of these Funds, including net
short-term capital gains, are taxable as ordinary income to shareholders whether
paid in additional shares or in cash. Any long-term capital gains distributed to
shareholders are taxable as capital gains to shareholders, whether they receive
them in cash or in additional shares, and regardless of the length of time a
shareholder has owned the shares.
These Funds intend to distribute substantially all net investment income and any
net realized long-term capital gains.
Fund (A and B shares) Dividends (if any) Capital gains (if any) The AAL Small
Cap Stock Fund annual annual The AAL Mid Cap Stock Fund annual annual The AAL
Capital Growth Fund semiannual annual The AAL Utilities Fund quarterly annual
The AAL International Fund annual annual The AAL Bond Fund monthly annual The
AAL Municipal Bond Fund monthly annual The AAL High Yield Bond Fund monthly
annual The AAL Money Market Fund monthly annual The AAL Bond Fund, Municipal
Bond Fund, High Yield Bond Fund and Money Market Fund will accrue income
dividends daily.
<PAGE>
THE AAL MUNICIPAL BOND FUND
Dividends derived from the interest earned on municipal securities constitute
"exempt-interest dividends" and are generally not subject to federal income tax.
The AAL Municipal Bond Fund will accrue dividends daily and pay these dividends
monthly. Capital gains will be paid at least annually. Realized capital gains on
municipal securities are subject to federal income tax. Thus, shareholders will
be subject to taxation at ordinary rates on the dividends they receive that are
derived from net short-term capital gains. Distributions of net long-term
capital gains will be taxable as long-term capital gains regardless of the
length of time a shareholder holds them. This Fund may, for temporary defensive
purposes, invest in short-term taxable securities. Shareholders of this Fund are
subject to federal income tax at ordinary rates on any income dividends they
receive that are derived from interest on taxable securities.
For shareholders who are receiving Social Security benefits, tax-exempt income,
including exempt-interest dividends from this Fund, will be added to your
taxable income in determining whether a portion of your Social Security benefits
will be subject to federal income tax. The Internal Revenue Code provides that
every person required to file a tax return must report, solely for informational
purposes, the amount of exempt-interest dividends received from the Funds during
the taxable year.
TAX CONSIDERATIONS
We are required by federal law to withhold 31% of reportable payments (which
include dividends, capital gain distributions, and redemption proceeds) to
shareholders who have not properly certified that the Social Security or other
taxpayer identification number they provided is correct and that he or she is
not subject to backup withholding. We do not provide information on state and
local tax consequences of ownership of shares of Funds.
REINVESTMENT OF FUND DISTRIBUTIONS
You can reinvest all of your income dividends and/or capital gains into the
Funds at net asset value and pay no sales charges or contingent deferred sales
charges. You can also have these distributions paid in cash. You may pay taxes
on Fund distributions that you reinvest or that are paid to you in cash. If you
have requested cash distributions and we cannot locate you, we will reinvest
your dividends.
DISTRIBUTION FEES GENERALLY
In addition to the sales charge deducted at the time of purchase, each Fund is
authorized under a Distribution Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940 to use a portion of its assets to finance certain activities
relating to the distribution of its shares to investors. The 12b-1 Distribution
Plan permits payments to be made by each of the Funds to the Distributor to
reimburse it for expenses incurred with the distribution of each of the Funds'
shares to investors. These payments include, but are not limited to,
compensation to sales representatives (excluding the initial sales charge),
advertising, preparation and distribution of sales literature and prospectuses
to prospective investors, implementing and operating the plan, and performing
other promotional or administrative activities on behalf of the Funds.
<PAGE>
Plan payments may also be made to reimburse the Distributor for its overhead
expenses related to distribution of the Funds' shares. No reimbursement may be
made under the Plan for expenses of past fiscal years or in contemplation of
expenses for future fiscal years. Distribution fees paid by one Fund may not be
used to finance distribution of shares of another Fund.
A service fee of up to 0.25 of 1% of the average net assets for Class A and
Class B shares is a shareholder servicing fee that compensates the Distributor
for providing certain shareholder services. 12b-1 distribution and servicing
fees for each Fund are contained in the following table:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ------------------------------------------------ ----------------------------------------------- ----------------------------------
Distribution Fee Service Fee
- ------------------------------------------------ ----------------------------------------------- ----------------------------------
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
Fund Class A Class B Class A Class B
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Small Cap Stock Fund none 0.75% 0.25% 0.25%
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Mid Cap Stock Fund none 0.75% 0.25% 0.25%
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Capital Growth Fund none 0.75% 0.25% 0.25%
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Utilities Fund none 0.75% 0.25% 0.25%
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL International Fund none 0.75% 0.25% 0.25%
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Bond Fund none 0.75% 0.25% 0.25%
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Municipal Bond Fund none 0.75% 0.25% 0.25%
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL High Yield Bond Fund none 0.75% 0.25% 0.25%
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Money Market Fund none 0.75% 0.125% 0.125%
- ------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
</TABLE>
<PAGE>
SHAREHOLDER MAINTENANCE AGREEMENT
The Board of Trustees authorized the Funds to contract with AAL Capital
Management Corporation for certain shareholder maintenance services. AAL Capital
Management Corporation receives an annual fee for providing these services. This
fee is based upon, and limited by, the difference between the current account
fees charged and the normal full-service fee schedule published by our Transfer
Agent. It also includes reimbursement for out-of-pocket costs including postage
and telephone charges. This account differential, including reimbursement for
expenses, is currently $4.08 per account per year.
YIELD AND PERFORMANCE INFORMATION
From time to time, we will calculate and advertise performance information for
different historical periods of time, by quoting yields or total returns
designed to inform you of the performance of the Funds. Whenever we advertise
performance, we will always include standardized yield and total return
information calculated in accordance with methods established by the Securities
and Exchange Commission. We also may include other total return calculations, if
we feel that they would be useful for you in evaluating the investment
performance of the Funds. Yields and total returns are based on historical
performance and are not intended to indicate future performance. Your investment
return and the principal value of your investments (except for The AAL Money
Market Fund, for which we intend to maintain at a constant $1.00 net asset
value) will fluctuate, and the value of your investment, if sold (redeemed), may
be worth more or less than your original cost.
STANDARDIZED YIELD AND TOTAL RETURNS
Whenever we advertises performance, we will include standardized yield and total
return quotations calculated in accordance with rules of the Securities and
Exchange Commission, in the manner described in the following paragraphs.
THE AAL MONEY MARKET FUND --STANDARDIZED YIELD AND STANDARDIZED EFFECTIVE YIELD
The AAL Money Market Fund may advertise a standardized yield and a standardized
effective yield. Both yield figures are based on historical earnings and are not
intended to indicate future performance.
The standardized yield of the Fund refers to the income generated by an
investment in the Fund over a seven-day period, which period will be shown in
the advertisement. This income, less expenses, is then annualized, which means
that the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the beginning investment value.
The standardized effective yield is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
<PAGE>
THE AAL CAPITAL GROWTH, MID CAP STOCK, SMALL CAP STOCK, UTILITIES,
INTERNATIONAL, BOND, MUNICIPAL BOND, HIGH YIELD BOND AND MONEY MARKET FUNDS --
STANDARDIZED CURRENT YIELD
We may advertise a standardized current yield, which is based on the income
generated by an investment in the particular Fund over a 30-day period, for The
AAL Capital Growth, Mid Cap Stock, Small Cap Stock, Utilities, International,
Bond, Municipal Bond and High Yield Bond Funds. We will state the period in the
advertisement. We determine income earned on debt obligations by applying a
calculated yield-to-maturity percentage to the obligations held during the
period. We determine income earned from equity securities by using the stated
annual dividend rate applied over the performance period. We then annualize the
income earned. That is, the amount of income generated during the 30-day period
is assumed to be generated and reinvested monthly to provide a six-month return
which is then annualized. We show the return as a percentage of the maximum
offering price per share on the last day of the period.
THE AAL MUNICIPAL BOND FUND -- STANDARDIZED TAX EQUIVALENT YIELD
For the AAL Municipal Bond Fund, we may advertise a standardized tax equivalent
yield, which illustrates the yield that would be required on a fully taxable
investment to result in the same net income to an investor in the Fund, after
payment of federal taxes at the stated rate. We compute the yield by dividing
that portion of the Fund's current yield that is tax-exempt by one minus a
stated federal income tax rate, and then adding the quotient to the value of any
yield of the Fund that is not tax-exempt.
THE AAL CAPITAL GROWTH, MID CAP STOCK, SMALL CAP STOCK, UTILITIES,
INTERNATIONAL, BOND, HIGH YIELD BOND and MUNICIPAL BOND FUNDS -- STANDARDIZED
AVERAGE ANNUAL TOTAL RATE OF RETURN
We may advertise for each of The AAL Mutual Funds (except The AAL Money Market
Fund) a standardized average annual total rate of return for one, five and ten
year periods, or so much thereof as a Fund has been in existence (since
inception). The standardized average annual total rate of return is the change
in redemption value of shares purchased with an assumed initial investment of
$1,000, after giving effect to the maximum applicable sales charge for A shares
or the applicable contingent deferred sales charge for B shares, assuming the
reinvestment of dividends and capital gains distributions.
OTHER TOTAL RETURNS
Due to the many ways of evaluating investment performance, we may advertise
total returns, other than those described above, if we feel that this
information is useful to you in evaluating the Funds. All Funds (except The AAL
Money Market Fund) may advertise total returns calculated on the basis of net
investment in the Fund, which means we may calculate investment performance
(total returns), usually based on dollars invested, without giving effect to the
maximum applicable sales charge. Such performance figures will be higher than
those calculated by the standardized methods for the same time period.
Additional information regarding yield and performance information is contained
in the Statement of Additional Information.
<PAGE>
CUSTODIAN, TRANSFER AGENT, AND INDEPENDENT ACCOUNTANTS
Transfer Agent
Firstar Trust Company
615 E. Michigan Street
P.O. Box 2981
Milwaukee, Wisconsin 53201-2981
Custodian (except for The AAL International Fund)
Firstar Trust Company
615 E. Michigan Street
P.O. Box 2981
Milwaukee, Wisconsin 53201-2981
Custodian for The AAL International Fund
The Chase Manhattan Bank, N.A.
Chase Metro Tech Center
Brooklyn, NY 11245
Independent Accountants
Price Waterhouse LLP
100 East Wisconsin Avenue, Suite 1500
Milwaukee, Wisconsin 53202
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a diversified open-end management investment company registered
under the Investment Company Act of 1940. Each of the Funds is a separate series
of a Massachusetts Business Trust organized under a Declaration of Trust dated
March 13, 1987, which provides that each shareholder shall be deemed to have
agreed to be bound by its terms. The Declaration of Trust may be amended by a
vote of shareholders or the Board of Trustees. The Trust may issue an unlimited
number of shares in one or more series as the Board of Trustees may authorize.
Currently, the Board has authorized ten eleven series with this prospectus
describing the class A and B shares for such nine series.
Classes of shares of each Fund represent interests in the assets of that Fund
and have identical dividend, liquidation and other rights and are subject to the
same terms and conditions except that expenses related to the distribution and
shareholder servicing of each class are borne solely by such class and each
class may, at the Trustees' discretion, also pay a different share of other
expenses, not including advisory or custodial fees or other expenses related to
the management of the Trust's assets, if those expenses are actually incurred in
a different amount by that class, or if the class receives services of a
different kind or to a different degree than the other classes. All other
expenses are allocated to each class on the basis of net asset value of that
class in relation to the net asset value of that particular fund. Class A and
class B shares have identical voting rights except that each class of shares has
exclusive voting rights on any matter submitted to shareholders that relates
solely to that class, and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interest of any
other class. Each class of shares has exclusive voting rights with respect to
matters involving the distribution and servicing plan applicable to that class.
Matters submitted to shareholder vote must be approved by each Fund separately
except:
<PAGE>
1) when required by the 40 Act;
2)when the Trustees determine that the matter does not affect all Funds, then
only the shareholders of the affected Funds may vote.
Shares are freely transferable, entitled to dividends declared by the Trustees,
and receive the assets of their respective Fund in the event of liquidation. The
Trust generally holds annual shareholder meetings only when required by law or
at the written request of shareholders owning at least 10% of the Trust's
outstanding shares. Shareholders may remove Trustees from office by votes cast
in person or by proxy at a shareholders' meeting.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims liability of the shareholders, the
Trustees, or officers of the Trust for acts or obligations of the Trust that are
binding only on the assets and property of the Trust. We include this disclaimer
in each agreement, obligation, or contract entered into or executed by the Trust
or the Board. The Declaration of Trust provides for indemnification out of the
Trust's assets for all losses and expenses of any shareholder held personally
liable for the obligations of the Trust. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is remote because
it is limited to circumstances where the Trust itself is unable to meets its
obligations.
ASSET ALLOCATION (DIVERSIFICATION)
You should not consider an investment in any one Fund a complete investment
program. Like most investors, you should hold a number of different investments,
each with a different level of risk, such as common stocks, bonds, and money
market certificates. You may want to meet your goal of diversifying your
investments by purchasing shares in a number of different funds, each of which
has a different investment strategy and level of risk.
QUESTIONS
If you have questions, contact your AAL Capital Management Corporation
Registered Representative or the Mutual Fund Service Center by calling
800-553-6319 or writing us at:
GLOSSARY OF IMPORTANT TERMS
AMORTIZED: Paying the principal on a debt by installments; an accounting method
that provides for the gradual decline in the value of an asset.
ANNUALIZED: Calculated to represent a year(s); a statement produced by
calculating financial results for periods other than a complete year(s).
<PAGE>
ASSET-BACKED SECURITIES: See Mortgage and Asset-Backed Securities, below.
BOND: An interest-bearing debt security, or discounted government or corporate
security, that requires the issuer to pay a specified amount of interest for a
specified time, usually a number of years, then repay the bondholder the face
amount of the bond.
BUSINESS DAY: Any day both the Federal Reserve Bank of New York and the New York
Stock Exchange are open for business. A business day normally begins at 8:00
a.m. Central Time when the Exchange opens, and usually ends at 3:00 p.m. Central
Time when the Exchange closes.
CALL OPTION: A contract giving the owner the right to buy 100 shares of a stock
at a predetermined price any time up to a predetermined expiration date.
CAPITAL GAIN OR LOSS: The increase or decrease in the value of a security over
the original purchase price. A gain or loss is REALIZED when the security that
has increased or decreased in value is sold. An UNREALIZED GAIN or LOSS occurs
when the value of a security increases or decreases but the security is not
sold. If a security is held for more than 12 months and then sold at a profit,
that profit is a REALIZED LONG TERM CAPITAL GAIN. If it is sold at a profit
before being held for 12 months, that profit is a REALIZED SHORT TERM CAPITAL
GAIN.
CHARTERED FINANCIAL ANALYST (CFA): Designation earned by financial analysts who
pass examinations in economics, financial accounting, portfolio management,
security analysis, and standards of conduct.
COLLATERAL: Something of value--such as real estate, stocks and bonds--pledged
to secure a debt.
COMMERCIAL PAPER: Short-term, unsecured debt obligations issued by businesses
and sold at a discount but redeemed at pay within 2 to 270 days.
COMPOUND INTEREST: Interest paid upon interest; interest that is calculated and
credited daily, weekly monthly, quarterly, semi-annually, or annually on both
the principal and the already credited interest.
CONVERTIBLE BONDS: Bonds that convert or exchange into stocks or carry with it
the right to acquire stocks evidenced by warrants attached to the bond or
acquired as part of the unit with the bonds.
COVERED OPTION: Option contract backed by the shares underlying the option.
DEBT SECURITIES: Bonds and other debt instruments used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity.
<PAGE>
DEFERRED INTEREST BONDS: Bonds that an issuer issues at a significant discount
from face value. The discount approximates the total amount of interest the
bonds will accrue and compound over the period until the first interest accrual
date at a rate of interest reflecting the market rate of the security at the
time of issuance. Deferred interest bonds provide for a period of delay before
the regular payment of interest begins.
DEPOSITORY RECEIPTS The Funds may hold securities of foreign issuers in the form
of American Depository Receipts (ADRs), American Depository Shares (ADSs),
Global Depository Receipts (GDRs) and European Depository Receipts (EDRs), or
other securities convertible into securities of foreign issuers. These
securities may not be denominated in the same currency as the securities for
which they might be exchanged. ADRs and ADSs are generally issued by a U.S. bank
or trust company and they evidence ownership of underlying foreign securities.
GDRs are global offerings where two securities are issued simultaneously in two
markets, usually publicly in non-U.S. markets and privately in the U.S. market.
EDRs (sometimes called Continental Depository Receipts [CDRs]) are receipts
issued in Europe, generally by a foreign bank or trust company and they evidence
ownership of foreign securities. ADRs and ADSs in registered form are generally
used in U.S. securities markets, GDRs in the U.S. and European markets and EDRs
and CDRs in bearer form are generally used in European securities markets. A
Fund will consider ADRs, ADSs, GDRs, EDRs and CDRs as investments in the
underlying equity securities for purposes of diversification.
ECONOMIC RISK: The risk that an investment will lose value or not pay expected
returns because of domestic or international events.
EQUITY: Ownership interest in a company; stock represents the equity or amount
of ownership you have in the company issuing the stock.
FACE VALUE: See Par.
FDIC: The Federal Deposit Insurance Corporation, an agency of the federal
government that guarantees individual deposits up to $100,000 at participating
banks and savings and loan associations.
FINANCIAL RISK: The fundamental risk of investing that the issuer of a security
may not be able to meet its obligations to its investors.
FLOATING RATE BONDS: SEE VARIABLE OR FLOATING RATE BONDS.
403(b)(7) RETIREMENT PLAN: A personal retirement savings program that lets
employees of certain tax-exempt organizations or school systems and educational
institutions contribute a portion of their earnings, usually by salary deferral
agreement, into a special mutual fund account. Contributions are made on a
pre-tax basis and benefit from tax-deferred build up of income. The right to
withdraw funds is limited by law and amounts withdrawn are subject to income
taxes.
<PAGE>
FUTURES CONTRACT: Agreement to buy or sell a specific amount of a commodity or
financial instrument at a particular price on a stipulated future date.
GENERAL OBLIGATIONS BONDS: Municipal bonds secured by the issuer's pledge of its
credit and taxing power for the payment of principal and interest.
INDIVIDUAL RETIREMENT ACCOUNT (IRA): A personal retirement savings program that
lets individuals with earned income (and their spouses) under age 70 1/2
contribute both deductible and non deductible payments with the benefit of
tax-deferred build up of income. Funds withdrawn are usually subject to income
taxes and, if withdrawn before age 59 1/2, may also be subject to penalties.
INDUSTRIAL DEVELOPMENT BONDS: Municipal bonds (usually revenue bonds), the
credit quality of which is normally directly related to the credit standing of
the industrial user involved or of the issuer of any credit enhancement such as
an insurance policy or letter of credit.
INFLATION RISK: The risk that the value of assets or of income from investments
will be less in the future as inflation decreases the
value of money.
INSTRUMENTALITY: An agency of the Federal government whose debts are sponsored
or guaranteed by the government and are backed by the full faith and credit of
the government, even though the debt is not a direct obligation of the U.S.
Government. Examples of government instrumentalities include the Federal Home
Loan Bank and the Student Loan marketing Association.
INTEREST: The payment borrowers make to lenders for the use of their money,
usually expressed as a percentage of the amount borrowed (the principal).
INVESTMENT GRADE: A bond or other fixed-income security is considered investment
grade if it is rated investment grade by a NRSRO, such as BBB or better by D&P
or S&P or Baa or better by Moody's.
LIQUIDITY: The ease and speed at which an investment can be converted into cash.
MARGIN: Amount a customer deposits with a broker when borrowing from the broker
to buy securities.
MARKET CAPITALIZATION: The value of a corporation as determined by multiplying
the current market price of a share of common stock by the number of shares held
by shareholders. Thus, if a corporation has one million shares outstanding and
the market price of a share is $10, the market capitalization of the corporation
is $10 million.
MARKET RISK: Refers to the tendency of security prices to move together. The
risk that a broad market downturn will impact investments in a particular field.
<PAGE>
MARKET VALUE: The price at which a security can be bought or sold at a given
time in an open market.
MATURITY: The date on which the principal of a debt obligation such as a bond
comes due and must be repaid.
MONEY MARKET INSTRUMENT: Short-term, liquid debt, such as Treasury bills and
commercial paper, which is sold at a discount but redeemed at par. See
COMMERCIAL PAPER.
MORTGAGE AND ASSET-BACKED SECURITIES: Typically these securities consist of
interest in pools of mortgages or consumer credit that provide monthly payments
consisting both interest and principal payments. In effect, these securities
"pass through" the monthly payments that individual borrowers make on their
mortgages or consumer loans net of any fees paid to the issuers or guarantors of
such securities. Mortgage backed and/or asset-backed securities may make
additional payments due to principal prepayments made on the mortgages or loans,
refinancing or foreclosures on the underlying property. Mortgage-backed
securities also may include debt obligations collateralized by mortgage loans or
mortgage pass-through securities ("CMOs") and stripped mortgage-backed
securities, as well as other types of mortgage-backed securities. For more
information on mortgage-backed securities, please refer to the Statement of
Additional Information
MUNICIPAL BONDS: Debt obligations issued by or on behalf of the governments of
states, territories or possessions of the United States, the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest on which is generally exempt from federal income tax.
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO): A company that
assesses the quality and potential performance of bonds, commercial paper,
preferred and common stocks, and municipal short-term issues, and rates the
probability that the issuer of the debt will meet the scheduled interest
payments and repay the principal. Ratings are published by such companies as
Moody's Investors Service (Moody's), Standard & Poor's Corporation (S&P), Duff &
Phelps, Inc. (D&P), and Fitch Investor Services, Inc. (Fitch).
OPEN-END FUND: Also called a mutual fund; an investment company in which people
invest by buying its shares, thereby pooling their money and allowing the fund
to invest in a number of securities. The fund distributes any profits from these
investments, after expenses, to the fund's shareholders. Although shares in the
fund are sold publicly, they are not traded on an open exchange because the fund
will buy and sell shares to meet investor demand. Since the company can issue
more shares, the company's capitalization is not fixed but open.
PAR: The stated principal value of a bond, or the stated value per share of
stock usually only used to calculate fees for incorporation. Typically bonds
have a principal value of $1,000.00. A security selling at its face value is
said to be selling at "par". A security selling below its face value is said to
be selling below par or at a discount. A security selling above its face value
is said to be selling above par or at a premium.
<PAGE>
PRINCIPAL: Face value of an obligation (such as a bond or loan) that must be
repaid at maturity.
PORTFOLIO: Combined holding of more than one stock, bond, commodity, real estate
investment, cash equivalent, or other asset by an individual or institutional
investor. The purpose of a portfolio is to reduce risk by diversification.
PREFERRED STOCK: Stock with a fixed dividend that must be paid before the
dividend of common stock is paid.
PUBLIC UTILITY: A privately owned company that is involved in the generation,
transmission, or distribution of electricity, gas, energy, water and telephone,
telegraph, satellite, microwave and other communication facilities for the
public benefit.
PUT OPTION: A contract giving the owner the right to sell 100 shares of stock at
a predetermined price any time up to a predetermined expiration date.
QUALIFIED RETIREMENT PLANS: Retirement plans established and maintained by an
employer for the benefit of its employees that must comply with special federal
tax and labor laws and regulations. Some of the more common types of qualified
plans are pension, profit sharing and 401(k) plans. A 401(k) plan also permits
employees to make contributions to the plan through salary deferrals.
RECORD DATE: Date on which a shareholder must officially own shares in order to
be entitled to a dividend.
REGULATED INVESTMENT COMPANY: Term used by Internal Revenue Code to define a
mutual fund.
REPURCHASE AGREEMENT: Agreement between a seller and a buyer, usually of U.S.
Government securities, whereby the seller agrees to repurchase the securities at
an agreed upon price and, usually, at a stated time.
REVENUE BONDS: Municipal bonds that usually are payable only from the revenues
derived for a particular facility or class of facilities, or in some cases from
the proceeds of a special excise tax or other specific revenue source.
RISK: The possibility that you may lose all or part of your investment, that the
value of your investment will decrease, or that you will receive little or no
return on your investment. There are many kinds of risks in investing. See also
ECONOMIC RISK, FINANCIAL RISK, INFLATION RISK, and MARKET RISK.
ROLLOVER IRA: An IRA that receives its funding through a distribution made from
another retirement plan, often because of the employee's termination of
employment from the retirement plan's sponsoring employer.
<PAGE>
SARSEP-IRA: A retirement plan that permits the employees to make contributions
through salary reduction agreements.
SEC: The U.S. Securities and Exchange Commission.
SEP-IRA: A retirement plan that permits employers to make contributions to their
employees' IRAs. If the employer permits the employees to make contributions
through salary reduction agreements, it is often called a SARSEP-IRA.
SECURITIES: Financial instruments, usually stocks, bonds, money market
instruments, or mutual fund shares that are issued by corporations;
municipalities; state, local, or national governments; or investment companies
to raise or borrow money or give the public an opportunity to participate in the
growth of a company.
SIMPLIFIED EMPLOYEE PENSION (SEP): A retirement plan that permits employers to
make contributions to their employees' IRAs. If the employer permits the
employees to make contributions through salary reduction agreements, it is often
called a SARSEP- IRA.
STANDARD & POOR'S INDEX: Also known as the STANDARD & POOR'S 500; Standard &
Poor's Corporation is a subsidiary of McGraw-Hill, Inc. that provides a number
of investor services. The S&P 500 is a measure of the changes in stock market
conditions based on the average performance of 500 widely held common stocks.
This index is considered the benchmark for large stock investors.
S&P SMALL CAP 600 INDEX (S&P SMALL CAP): Introduced in October 1994 to track
small cap stocks. It contains companies chosen by a committee at Standard &
Poor's for their size, industry characteristics, and liquidity. None of the
companies in the S&P Small Cap overlap with the S&P 500 or S&P Mid Cap. However,
some companies in the S&P Small Cap are larger than the S&P Mid Cap or S&P 500.
S&P MID CAP 400 INDEX (S&P MID CAP): Contains companies chosen by a committee at
Standard & Poor's for their mid cap size and industry characteristics. None of
the companies in the S&P Mid Cap overlap with the S&P 500 or S&P Small Cap. Some
companies in the S&P Mid Cap, however, are larger than those in the S&P 500 and
smaller than those in the S&P Small Cap. This is a function of the normal drift
that takes place in any index as some companies' stock prices appreciate and
those of others depreciate.
STRUCTURED SECURITIES: Securities that have a value linked to currencies,
interest rates, commodities, indices or other financial indicators. Typically,
these securities are debt securities or deposits whose value at maturity (i.e.,
principal value) or coupon rate is determined by reference to a specific
instrument or statistic. For example, goldstructured securities may provide for
maturity values that depend on the price of gold, resulting in securities whose
prices tend to rise and fall together with gold prices.
<PAGE>
TOTAL RETURN: The combination of the change in price of an investment plus any
income (or other distributions), it is expressed as a percentage gain or loss in
the investment's value.
TRANSFER AGENT: An agent appointed by a mutual fund to maintain records of
shareholders, and issue share certificates.
TRUST: An arrangement that permits one party, the Trustee, to hold legal title
and control property for the benefit of another party, the beneficiary.
TURNOVER: Also called the PORTFOLIO TURNOVER RATE; the percentage change in the
assets held by the Fund due to its purchases and sales. A portfolio turnover
rate of 100% means that the Fund has purchased and sold securities equal to 100%
of the Fund's total net asset value for the year.
12B-1 DISTRIBUTION/SERVICE FEE: The fee a mutual fund charges shareholders to
cover the expenses the fund has for shareholder service, advertising, promoting,
and selling shares in the fund, also called distribution fee.
VARIABLE OR FLOATING RATE BONDS: Variable or floating rate debt obligations bear
variable or floating interest rates and carry rights that permit holders to
demand payment of the unpaid principal balance plus accrued interest from the
issuers or certain financial intermediaries. Floating rate instruments have
interest rates that change whenever there is a change in a designated base rate
while variable rate instruments provide for a specified periodic adjustment in
the interest rate. The interest rate formulas are designed to result in a market
value for the instruments that approximate their par values, reducing the effect
of changing market conditions on their underlying market values.
VARIABLE RATE MASTER NOTES: unsecured obligations, redeemable on notice, that
permit investment of varying amounts at varying interest rates according to an
agreement with the issuer.
VOLATILITY: The measure of the rise and fall of the price of a security over a
stated period of time.
YIELD: The annual return on an investment (from dividends or interest) expressed
as a percentage of either cost or current price.
ZERO COUPON BONDS: Bonds that the issuer issues at a significant discount from
face value. The discount approximates the total amount of interest the bonds
will accrue and compound over the period until maturity reflecting the market
rate of the security at the time of issuance.
The AAL Mutual Funds
c/o Firstar Trust Company
615 East Michigan Street
P.O. Box 2981
Milwaukee, WI 53201-2981
<PAGE>
APPENDIX: SECURITY RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards as to the creditworthiness of an issuer. Consequently,
the Adviser and Sub-Adviser believe that the quality of debt securities in which
The Fund invests should be continuously reviewed and that individual analysts
give different weightings to the various factors involved in credit analysis. A
rating is not a recommendation to purchase, sell or hold a security, because it
does not take into account market value or suitability for a particular
investor. When a security has received a rating from more than one service, each
rating should be evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources which they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
The following is a description of the characteristics of ratings used by Duff &
Phelps Credit Rating Co., Moody's Investors Service, Inc., Standard & Poor's
Corporation and Fitch Investors Service, Inc. four major nationally recognized
statistical rating organizations.
DUFF & PHELPS
RATING SCALE DEFINITION
- ------------ ----------
AAA Highest credit quality. The risk factors are negligible, being only slightly
more than for risk free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. AA Risk is modest but
may vary slightly from time to time AA- because of economic conditions.
A+ Protection factors are average but adequate. However A risk factors are more
variable and greater in periods of A- economic stress.
BBB+ Below average protection factors but still considered BBB sufficient for
prudent investment. Considerable BBB- variability in risk during economic
cycles.
BB+ Below investment grade but deemed likely to meet ob- BB ligations when due.
Present or prospective financial BB- protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+ Below investment grade but deemed likely to meet ob- B ligations when due.
Present or prospective financial B- protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
<PAGE>
CCC Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions and/or with unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and or
interest payments.
DP Preferred stock with dividend arrearages.
MOODY'S RATING
SCALE DEFINITIONS
- ----- -----------
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are general known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as Aaa securities or fluctuations of protective elements may
be of greater amplitude or there may be other elements present which make
long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations (i.e.
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
<PAGE>
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over a long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rate C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category ; the modifier 2 indicates a
mid-range raking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category
STANDARD & DEFINITIONS
POOR'S RATING
SCALE
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degrees.
A Debt rated "A" has strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CC,CC,C Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
<PAGE>
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BBB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Averse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to default and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC The rating "CC" is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to debt subordinated to senior debt which
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation in which a bankruptcy petition has been filed, but debt
service payments are continued.
CI The rating "CI" is reserved for income bonds on which no interest is paid.
D Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
NR NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S & P does not rate
a particular type
of obligation as a matter of policy.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
category.
<PAGE>
FITCH INVESTMENT DEFINITIONS
GRADE BOND
RATINGS:
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have an adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
NR NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus or Minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
COMMERCIAL PAPER RATINGS
RATINGS BY DUFF & PHELPS
Category 1: Top Grade
Duff 1 plus Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or ready access to alternative sources of funds,
is clearly outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
Duff 1 minus High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
<PAGE>
Category 2: Good Grade
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
Category 3: Satisfactory Grade
Duff 3 Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless timely payment is expected.
RATINGS BY MOODY'S
Moody's commercial paper ratings are opinions of the ability to repay punctually
promissory obligations. Moody's employs the following three category
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: Prime 1 --highest quality; Prime 2--higher
quality; Prime 3--high quality.
RATINGS BY STANDARD & POOR'S
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment. Ratings are graded into four categories, ranging
from "A" for the highest quality obligations to "D" for the lowest.
Issues assigned the highest rating category, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics. Capacity for
timely payment on issues with the designation "A-2" is strong. However, the
relative degree of safety is not as high as for issues designated A-1. Issues
carrying the designation A-3 have a satisfactory capacity for timely payment.
They are, however, somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.
MUNICIPAL NOTE RATINGS
RATINGS BY MOODY'S
MIG 1. This designation category denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
<PAGE>
MIG 2. This designation category denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3. This designation category denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
RATINGS BY S & P
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment. Amortization schedule (the larger
the final maturity relative to other maturities, the more likely the issue will
be rated as a note.) Source of payment (the more dependent the issue is on the
market for its refinancing, the more likely it will be rated as a note.)
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES
S & P assigns dual ratings to all long-term debt issues that have as part of
their provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity and the commercial paper rating symbols are
usually used to denote the put (demand) options (for example, AAA/A-1+.)
Normally demand notes receive note rating symbols combined with commercial paper
symbols (for example SP-1+/A-1+.)
<PAGE>
[AAL LOGO APPEARS HERE]
The AAL Mutual Funds
----------------------------------------------------------------
222 West College Avenue, Appleton, WI 54919-0007
800-553-6319
Board of Trustees
- -------------------------------------------------------------------------------
John H. Pender D. W. Russler
Chairman of the Board F. Gregory Campbell
Richard L. Gady Richard L. Gunderson
Lawrence M. Woods Ronald Anderson
Officers
- -------------------------------------------------------------------------------
H. Michael Spence Robert G. Same
President Vice President Secretary
Terrance P. Gallagher Joseph F Wreschnig
Treasurer Assistant Secretary
Charles D. Gariboldi, Jr.
Assistant Treasurer
Investment Adviser & Distributor
- -------------------------------------------------------------------------------
AAL Capital Management Corporation
222 West College Avenue
Appleton, WI 54919-0007
Transfer Agent & Disbursing Agent
- -------------------------------------------------------------------------------
Firstar Trust Company
615 East Michigan Street
P.O. Box 2981
Milwaukee, WI 53201-2981
Sub-Adviser - AAL International Fund
- -------------------------------------------------------------------------------
Societe Generale Asset Management Corp.
1221 Avenue of the Americas
New York, NY 10020
Custodian (except for The AAL International Fund)
Firstar Trust Company
615 East Michigan Street
P.O. Box 2981
Milwaukee, WI 53201-2981
<PAGE>
Custodian - The AAL International Fund
The Chase Manhattan Bank, N.A.
Chase Metro Tech Center
Brooklyn, NY 11245
Independent Accountants
- -------------------------------------------------------------------------------
Price Waterhouse LLP
Suite 1500
100 East Wisconsin Avenue
Milwaukee, WI 53202
Legal Counsel
- -------------------------------------------------------------------------------
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
<PAGE>
The AAL Mutual Funds
222 West College Avenue
Appleton, WI 54919-0007
Telephone (414) 734-5721, 800-553-5319
TDD 800-684-3416
STATEMENT OF ADDITIONAL INFORMATION
Dated January 8, 1997
The AAL Capital Growth Fund: Investing In Large Company Stocks
The AAL Mid Cap Stock Fund (Formerly Known As The AAL Smaller Company
Stock Fund): Investing In Mid-Sized Company Stocks
The AAL Small Cap Stock Fund: Investing In Small Company Stocks
The AAL International Fund: Investing In Foreign Securities
The AAL Utilities Fund: Investing In Public Utilities Securities
The AAL Bond Fund: Investing In Investment Grade Bonds
The AAL Municipal Bond Fund: Investing In Tax-Exempt Municipal Securities
The AAL High Yield Bond Fund: Investing in Non-Investment Grade Securities
The AAL Money Market Fund: A Money Market Investment
This Statement of Additional Information is not a prospectus, but
provides additional information which should be read in conjunction with the
Prospectus of The AAL Mutual Funds dated January 8, 1997 and any supplements
thereto. The Funds' Prospectus may be obtained at no charge by writing or
telephoning your AAL Capital Management Corporation Registered Representative or
The AAL Mutual Funds at the address and telephone number above. Two additional
series: The AAL U.S. Government Zero Coupon Bond Fund, Series 2001; and The AAL
U.S. Government Zero Coupon Bond Fund, Series 2006, are described in a separate
Prospectus and Statement of Additional Information.
In this Statement of Additional Information, The AAL Mutual Funds may
be referred to as the "Trust," and The AAL Capital Growth, Mid Cap Stock (f/k/a
The AAL Smaller Company Stock Fund), Small Cap Stock, International, Utilities,
Bond, Municipal Bond, High Yield Bond, and Money Market Funds may be referred to
<PAGE>
collectively as the "Funds" or individually as a "Fund." Terms not otherwise
defined have the same meaning as in the Prospectus.
Table of Contents
Investment Objectives And Policies.............................................
Investment Techniques..........................................................
Investment Restrictions........................................................
Purchases And Redemptions; Pricing Considerations..............................
Investment Advisory Services...................................................
Compensation of The Board of Trustees..........................................
Distributor....................................................................
Distribution Plan..............................................................
Portfolio Transactions.........................................................
Dividends, Distributions And Taxes.............................................
Calculation Of Yield And Total Return..........................................
General ......................................................................
Shareholder Maintenance Agreement..............................................
Independent Accountants........................................................
Financial Statements...........................................................
<PAGE>
Investment Objectives And Policies
The following information supplements the discussion of the Funds' respective
investment objectives and policies described in the Prospectus. In pursuing
their respective objectives, each Fund invests as described below and employs
the investment techniques described in the Prospectus and elsewhere in this
Statement of Additional Information. Each Fund's investment objective is a
fundamental policy, which may not be changed without the approval of a "majority
of the outstanding voting securities" of that Fund. A "majority of the
outstanding voting securities" means the approval of the lesser of: (i) 67% or
more of the voting securities at a meeting if the holders of more than 50% of
the outstanding voting securities of a Fund are present or represented by proxy;
or (ii) more than 50% of the outstanding voting securities of a Fund.
The AAL Capital Growth Fund: Investing In Large Company Stocks
This Fund seeks long-term capital growth by investing in a diversified portfolio
of common stocks, and securities convertible into common stocks.
The AAL Mid Cap Stock Fund (Formerly Known As The AAL Smaller Company
Stock Fund): Investing In Mid-Sized Company Stocks
This Fund seeks capital growth by investing primarily in a diversified portfolio
of common stocks, and securities convertible into common stocks, of mid-sized
companies with a market capitalization of between $100 million and $5 billion,
focusing on those with a market capitalization of between $400 million and $3.5
billion. Prior to July 1, 1996 The AAL Mid Cap Stock Fund was known as The AAL
Smaller Company Stock Fund.
The Fund is designed for long-term investors who are able to accept the risks
associated with seeking capital appreciation by investing in mid-sized
companies.
The AAL Small Cap Stock Fund: Investing In Small Company Stocks
This Fund seeks capital growth by investing primarily in a diversified portfolio
of common stocks, and securities convertible into common stocks, of small-sized
companies with a market capitalization of less than $1 billion.
The Fund is designed for long-term investors who are able to accept the risks
associated with seeking capital growth by investing in small companies.
<PAGE>
The AAL International Fund: Investing In Foreign Securities
This Fund seeks capital growth by investing primarily in a diversified portfolio
of foreign securities.
The Fund is designed for long-term investors who are able to accept the risks
associated with seeking capital growth by investing in foreign securities.
The AAL Utilities Fund: Investing In Public Utilities Securities
This Fund seeks current income, long-term growth of income and capital
appreciation, by investing primarily in a diversified portfolio of equity and
debt securities of companies in the public utilities industry.
The AAL Bond Fund: Investing In Investment Grade Bonds
This Fund seeks a high level of current income, consistent with preservation of
capital, by investing primarily in a diversified portfolio of investment grade
bonds and other debt securities. Prior to July 1, 1992, The AAL Bond Fund was
known as The AAL Income Fund.
The AAL Municipal Bond Fund: Investing In Tax-Exempt Municipal Securities
This Fund seeks a high level of current income that is exempt from federal
income taxes, consistent with preservation of capital, by investing primarily in
a diversified portfolio of municipal securities.
The AAL High Yield Bond Fund: Investing in Non-Investment Grade Securities
This Fund seeks high current income and secondarily capital growth by investing
primarily in a diversified portfolio of high yield, high risk bonds ("High Yield
Bonds").
The AAL Money Market Fund: Investing In Money Market Instruments
This Fund seeks a high level of current income consistent with preservation of
capital and liquidity by investing in a diversified portfolio of high-quality,
short-term money market instruments.
Investment Techniques
Each of the Funds may use the techniques described in the Prospectus and in the
Statement of Additional Information in pursuit of its investment objective.
<PAGE>
Lending Portfolio Securities
Subject to restriction (4) under "Investment Restrictions," below, a Fund may
lend its portfolio securities to broker-dealers and financial institutions, such
as banks and trust companies. The Adviser and/or Sub-Adviser for The AAL
International Fund will monitor the creditworthiness of any firm with which a
Fund engages in securities lending transactions. Any such loan must be
continuously secured by collateral in cash or cash equivalents maintained on a
current basis in an amount at least equal to the market value of the securities
loaned by the Fund. The Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned, and would
also receive an additional return which may be in the form of a fixed fee or a
percentage of the collateral. The Fund would have the right to call the loan and
obtain the securities loaned at any time on notice of not more than five
business days. The Fund would not have the right to vote the securities during
the existence of the loan, but would call the loan to permit voting of
securities during the existence of the loan if, in the Adviser's and/or
Sub-Adviser for The AAL International Fund's judgment, a material event
requiring a shareholder vote would otherwise occur before the loan was repaid.
In the event of bankruptcy or other default of the borrower, the Fund could
experience both delays in liquidating the loan collateral or recovering the
loaned securities and losses including: (a) possible decline in the value of the
collateral or in the value of the securities loaned during the period when the
Fund seeks to enforce its rights thereto; (b) possible subnormal levels of
income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
Repurchase Agreements
The Funds maintain procedures for evaluating and monitoring the creditworthiness
of firms with which they enter into repurchase agreements. A Fund may not invest
more than 10% of its net assets in repurchase agreements maturing in more than
seven days.
When-issued and Delayed Delivery Securities
A Fund may purchase securities on a when-issued or delayed-delivery basis, as
described in the Prospectus. A Fund makes such commitments only with the
intention of actually acquiring the securities, but may sell the securities
before settlement date if the Adviser and/or Sub-Adviser for The AAL
International Fund deems it advisable for investment reasons.
At the time a Fund enters into a binding obligation to purchase securities on a
when-issued basis, liquid assets of the Fund having a value at least as great as
the
<PAGE>
purchase price of the securities to be purchased are identified on the books of
the Fund and held by the Funds' custodian throughout the period of the
obligation. The use of these investment strategies may increase net asset value
fluctuation.
Convertible Bonds
The Funds, except for The AAL Money Market Fund, may invest in convertible
bonds, subject to any restrictions on the quality of the bonds in which the Fund
may invest, and retain any stocks received upon conversion that do not fall
within the Fund's investment parameters to permit orderly disposition, to
establish a long-term holding basis for Federal income tax purposes, or to seek
capital growth.
Rated Securities
If the rating of a Fund security is lost or reduced, the Fund is not required to
sell the security, but the Adviser and/or the Sub-Adviser for The AAL
International Fund will consider such fact in determining whether that Fund
should continue to hold the security. With respect to The AAL Money Market Fund,
however, the Fund will sell downgraded commercial paper to the extent required
to comply with Rule 2a-7 under the Investment Company Act of 1940 (the "Act").
To the extent that the ratings given by Nationally Recognized Statistical Rating
Organizations for debt securities change as a result of changes in such
organization, or changes in their rating systems, a Fund will attempt to use
comparable ratings as standards for its investments in debt securities in accord
with its investment policies.
High Yield Bond Market -- The AAL International and High Yield Bond Funds
The AAL International Fund and The AAL High Yield Bond Fund invest in high
yield, high risk bonds, with The AAL High Yield Bond Fund normally investing at
least 65% of its assets in such securities. While the market for high yield
bonds has existed for many years and has weathered previous economic downturns,
the 1980's brought a dramatic increase in the use of such securities to fund
highly leveraged corporate acquisitions and restructuring. Past experience may
not provide an accurate indication of the future performance of the high yield
bond market, especially during periods of economic recession. From 1989 to 1991,
the percentage of lower quality securities that defaulted rose significantly
above prior default levels. However, the default rate decreased subsequently.
The AAL High Yield Bond Fund may invest in Iower rated asset and mortgage-backed
securities, including interest in pools of lower-rated bonds, consumer loans or
mortgages, or complex instruments such as collateralized mortgage obligations
("CMOs") and stripped mortgage-backed securities (the separate income or
principal
<PAGE>
components). Changes in interest rates, the market's perception of the issuers
and the creditworthiness of the parties involved may significantly affect the
value of these bonds. Some of these securities may have a structure that makes
their reaction to interest rates and other factors difficult to predict, causing
their value to be highly volatile. These bonds also may be subject to prepayment
risk. During periods of declining interest rates, prepayment of the loans and
mortgages underlying these securities tend to accelerate. Accordingly, any
prepayments on these securities held by the Fund reduces our ability to maintain
positions in high-yielding, mortgage-backed securities and reinvest the
principal at comparable yields.
Collateralized Mortgage Obligations and Multi-Class Pass-Through Securities --
The AAL Bond and High Yield Bond Funds
The AAL Bond and High Yield Bond Funds may invest in mortgage-backed securities,
including CMOs and multi-class pass-through securities, which are debt
instruments issued by special purpose entities secured by pools of mortgage
loans or other mortgage-backed securities. Multi-class pass-through securities
are interests in a trust composed of mortgage loans or other mortgage-backed
securities. Payments of principal and interest on the underlying collateral
provide the money to pay debt service on the CMO or make scheduled distributions
on the multi-class pass-through security. Multi-class pass-through securities,
CMOs, and classes thereof (including those discussed below) are examples of the
types of financial instruments commonly referred to as "derivatives."
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMO, often referred to as a "tranche," is issued a specified coupon
rate and has a stated maturity or final distribution date. Principal payments on
collateral underlying a CMO may cause it to be retired substantially earlier
than the stated maturity or final distribution dates. Interest is paid or
accrues on all classes of a CMO on a monthly, quarterly or semi-annual basis.
The principal and interest on the underlying mortgages may be allocated among
the several classes of a CMO's series in many ways. In a common structure,
payment of principal on the underlying mortgages are applied according to
scheduled cash flow priorities to classes of a CMO's series.
There are many classes of CMOs. There are interest only's ("IOs"), which entitle
the holder to receive distributions consisting solely or primarily of all or a
portion of the interest in an underlying pool of mortgages or mortgage-backed
securities ("Mortgage Assets"). There are also principal only's ("POs"), which
entitle the holder to receive distributions consisting solely or primarily of
all or a portion of the underlying pool of Mortgage Assets. In addition, there
are "inverse floaters," which have a coupon rate that moves in the reverse
direction to an applicable index, and accrual (or "Z") bonds, which are
described below.
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As to IOs, POs, inverse floaters and accrual bonds, each Fund may not invest
more than 7.5% of its net assets in any one of these obligations at any one
time, and more than 15% of its net assets in all such obligations at any one
time.
Inverse floating CMOs are typically more volatile than fixed or adjustable rate
tranches of CMOs. Investments in inverse floating CMOs would be purchased by the
Fund to attempt to protect against a reduction in the income earned on the
Funds' investments due to decline in interest rates. The Funds would be
adversely affected by the purchase of such CMOs in the event of a increase in
the interest rates because the coupon rate thereon will decrease as interest
rates increase, and, like other mortgage-backed securities, the value will
decrease as interest rates increase.
The cash flows and yields on IO and PO classes are extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
pool of mortgage loans or mortgage backed securities. For example, a rapid or
slow rate of principal payments may have a material adverse effect on the yield
to maturity of IOs or POs, respectively. If the underlying Mortgage Assets
experience greater than anticipated prepayments of principal, the holder of an
IO may incur substantial losses even if the IO class is rated AAA. Conversely,
if the underlying Mortgage Assets experience slower than anticipated prepayments
of principal, the yield and market value for the holder of a PO will be affected
more severely than would be the case with a traditional mortgage-backed
security.
However, if interest rates were expected to rise, the value of an IO might
increase and may partially offset other bond value declines, and if rates were
expected to fall, the inclusion of POs could balance lower reinvestment rates.
An accrual or Z bondholder is not entitled to receive cash payments until one or
more other classes of the CMO have been paid in full from payments on the
mortgage loans underlying the CMO. During the period in which cash payments are
not being made on the Z tranche, interest accrues on the Z tranche at a stated
rate, and this accrued interest is added to the amount of principal that is due
to the holder of the Z tranche. After the other classes have been paid in full,
cash payments are made on the Z tranche until its principal (including
previously accrued interest that was added to principal, as described above) and
accrued interest at the stated rate have been paid in full. Generally, the date
upon which cash payments begin to be made on a Z tranche depends on the rate at
which the mortgage loans underlying the CMO are prepaid, with a faster
prepayment rate resulting in an earlier commencement of cash payments on the Z
tranche. Like a zero coupon bond, during its accrual period the Z tranche of a
CMO has the advantage of eliminating the risk of reinvesting interest payments
at lower rates during a period of declining market interest rates. At the same
time, however, and also like a zero coupon bond, the market value of a Z tranche
can be expected to fluctuate more widely with changes in market interest rates
than would the market value
<PAGE>
of a tranche that pays interest currently. Changes in market interest rates also
can be expected to influence prepayment rates on the mortgage loans underlying
the CMO of which a Z tranche is a part. As noted above, such changes in
prepayment rates will affect the date at which cash payments begin to be made on
a Z tranche, and therefore also will influence its market value.
Structured Securities -- The AAL International and High Yield Bond Funds
The AAL International and High Yield Bond Funds may invest in structured notes
and/or preferred stock, the value of which is linked to currencies, interest
rates, other commodities, indices or other financial indicators. The securities
differ from other securities in which the Funds may invest in several ways. For
example, the coupon, dividend and/or redemption amount at maturity may be
increased or decreased depending on the value of the underlying instrument.
Investment in structured securities involves certain risks. In addition to the
credit risk of the issuer and the normal risks of changes in interest rates, the
redemption amount may increase or decrease as a result of price changes in the
underlying instrument. Further, in the case of certain structured securities,
the coupon and/or dividend may be reduced to zero, and any further declines in
the value of the underlying instrument may then reduce the redemption amount
payable at maturity. Finally, structured securities may have more volatility
than the price of the underlying instrument.
Variable Rate Demand Notes
Except for The AAL Municipal Bond Fund, the Funds may purchase variable rate
master demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Although the notes are not normally traded and there may be no
secondary market in the notes, a Fund may demand payment of principal at any
time. Except for The AAL High Yield Bond Fund, the notes purchased by the Funds
must either be rated in one of the two highest rating categories by a Nationally
Recognized Statistical Rating Organization or have been issued by an issuer that
has received a rating from the requisite Nationally Recognized Statistical
Rating Organizations, in the top categories with respect to a class of
short-term debt obligations that is now comparable in priority and security with
the instrument. If an issuer of a variable rate master demand note defaulted on
its payment obligation, the Funds might be unable to dispose of the note because
of the absence of a secondary market and might, for this or other reasons,
suffer a loss to the extent of the default. The Funds invest in variable rate
master demand notes only when the investment adviser deems the investment to
involve minimal credit risk.
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Portfolio Turnover -- The AAL Bond, Municipal Bond and High Yield Bond Funds
As noted in the Prospectus, portfolio turnover rates in excess of 100% may
increase brokerage and other trading expenses incurred by a Fund. The AAL Bond
Fund's portfolio turnover rate increased from 44.57% for the fiscal year ended
on April 30, 1995, to 125.77% for the fiscal year ended on April 30, 1996. The
increase reflected the activities of a new portfolio manager, who repositioned
the Fund to reflect his style of investing within the Fund's investment
paramaters. The AAL Municipal Bond Fund's portfolio turnover rate for the year
ended on April 30, 1996 was 130.52%. The turnover rate reflects the portfolio
manager's pursuit of total return (growth and income) in the municipal
securities market.
In seeking its objectives, The High Yield Bond Fund will buy or sell portfolio
securities whenever the Adviser believes it appropriate. The Adviser's decision
will not generally be influenced by how long the Fund may have owned the
security. From time to time, the Fund will buy securities intending to seek
short-term trading profits. As a result, The AAL High Yield Bond Fund's
portfolio turnover rate may be higher than that of other mutual funds. The
Fund's portfolio turnover rate is not a limiting factor when considering a
change in the Fund's portfolio.
Options And Futures
The Funds, except for The AAL Money Market Fund, may engage in options, futures
and options on futures transactions that constitute bona fide hedging or other
permissible risk management transactions. The Funds will follow the requirements
of the SEC and the Commodities Futures Trading Commission and set aside liquid
assets in a separate account to secure a Fund's potential obligations under its
futures or options positions.
As the writer of a covered call option, a Fund may forego, during the option's
life, the opportunity to profit from increases in the market value of the
security covering the call option above the sum of the premium and the exercise
price of the call option. However, if the market value of the security declines,
writing a call option would reduce the amount of any decline sustained to the
extent of the premium income received from the sale of the covered call option.
Additionally, in periods when the market is neutral or declining, additional
incremental income can be achieved by writing options and receiving the
premiums. In addition, through the writing and purchase of options and the
purchase and sale of futures contracts and related options, a Fund may at times
seek to enhance current returns or to hedge against a decline in the value of
securities owned by it or an increase in the price of securities which it plans
to purchase.
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If additional types of options, futures contracts, or futures options are traded
in the future, a Fund may also use those investment vehicles provided that the
Board of Trustees determines that their use is consistent with a Fund's
investment objective.
Options on Securities and Indexes
Options and futures may be purchased and sold on debt or other securities or
indexes in standardized contracts traded on national securities exchanges,
boards of trade, or similar entities, or quoted on NASDAQ. In addition,
agreements sometimes called cash puts may accompany the purchase of a new issue
of bonds from a dealer. Currently there are no publicly traded options on
tax-exempt securities.
An option on a security (or index) is a contract that gives the holder of the
option, in return for a premium, the right to buy from (call) or sell to (put)
the writer of the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the term of the
option. The writer of an option on a security has the obligation upon exercise
of the option to deliver the underlying security upon payment of the exercise
price or to pay the exercise price upon delivery of the underlying security.
Upon exercise, the writer of an option on an index is obligated to pay the
difference between the cash value of the index and the exercise price multiplied
by the specified multiplier for the index option. (An index is designed to
reflect specified facets of a particular financial or securities market, a
specific group of financial instruments or securities, or certain economic
indicators.)
The Funds, except for The AAL Money Market Fund, will write call options and put
options only if they are "covered." In the case of a call option on a security,
the option is covered if a Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio. For a
call option on an index, the option is covered if a Fund maintains with their
custodian cash or cash equivalents equal to the contract value. A call option
also is covered if a Fund holds a call on the same security or index as the call
written where the exercise price of the call purchased is: (i) equal to or less
than the exercise price of the call; or (ii) greater than the exercise price of
the call written, provided the difference is maintained by a Fund in cash or
cash equivalents in a segregated account with its custodian. A put option on a
security or an index is covered if a Fund maintains a cash or cash equivalents
equal to the exercise price in a segregated account with their custodian. A put
option also is covered if a Fund holds a put on the same security or index as
the put written where the exercise price of the put held is: (i) equal to or
greater than the exercise price of the put written; or (ii) less than the
exercise price of the put written, provided the difference is maintained by a
Fund in cash or cash equivalents in a segregated account with its custodian.
<PAGE>
If an option written by a Fund expires, the Fund realizes a capital gain equal
to the premium received at the time the option was written. If an option
purchased by The Fund expires unexercised, the Fund realizes a capital loss
equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
underlying security or index, exercise price, and expiration). There can be no
assurance, however, that a closing purchase or sale transaction can be effected
when a Fund desires.
A Fund will realize a capital gain from a closing purchase transaction if the
cost of the closing option is less than the premium received from writing the
option, or, if it is more, a Fund will realize a capital loss. If the premium
received from a closing sale transaction is more than the premium paid to
purchase the option, a Fund will realize a capital gain or, if it is less, a
Fund will realize a capital loss. The principal factors affecting the market
value of a put or call option include supply and demand, interest rates, the
current market price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying security or index
and the time remaining until the expiration date.
The premium paid for a put or call option purchased by a Fund is an asset of the
Fund. The premium received for an option written by the Fund is recorded as a
deferred liability. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.
Risks Associated with Options on Securities and Indexes
There are several risks associated with transactions in options on securities
and on indexes. For example, there are significant differences between the
securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. If a Fund were unable to close out an option that
it had purchased on a security, it would have to exercise the option in order to
realize any profit or the option may expire worthless. If a Fund were unable to
close out a covered call option that it had written on security, it would not be
able to sell the underlying security unless the option expires without exercise.
As the writer of a covered call option, a Fund forgoes, during the option's
life, the opportunity to profit from increases
<PAGE>
in the market value of the security covering the call option above the sum of
the premium and the exercise price of the call.
If trading were suspended in an option purchased by a Fund, a Fund would not be
able to close out the option. If restrictions on exercise were imposed, a Fund
might be unable to exercise an option it has purchased. Except to the extent
that a call option on an index written by a Fund is covered by an option on the
same index purchased by a Fund, movements in the index may result in a loss to a
Fund; however, such losses may be mitigated by changes in the value of a Fund's
portfolio securities during the period the option was outstanding.
Futures Contracts and Options on Futures Contracts
A Fund may use interest rate and index futures contracts. An interest rate or
index futures contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument or the cash
value of an index at a specified price and time. A futures contract on an index
is an agreement by which two parties agree to take or make delivery of an amount
of cash equal to the difference between the value of the index at the close of
the last trading day of the contract and the price at which the index contract
was originally written. Although the value of an index might be a function of
the value of certain specified securities, no physical delivery of those
securities is made.
A public market exists in futures contracts covering a number of indexes as well
as the following financial instruments: U.S. Treasury bonds; U.S. Treasury
notes; GNMA certificates; three-month U.S. Treasury bills; 90 day commercial
paper; bank certificates of deposit; and Eurodollar certificates of deposit. It
is expected that other futures contracts will be developed and traded. A Fund
may engage in transactions involving new futures contracts (or options thereon)
if, in the opinion of the Board of Trustees, they are appropriate hedging
instruments for a Fund.
A Fund may purchase (and, if the Commodity Futures Trading Commission grants
certain regulatory relief, write) call and put futures options. Futures options
possess many of the same characteristics as options on securities and indexes. A
futures option gives the holder the right, in return for the premium paid, to
assume a long position (call) or short position (put) in a futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise of a call option, the holder acquires a long position in the futures
contract and the writer is assigned the opposite short position. In the case of
a put option, the opposite is true.
As long as it is required by regulatory authorities having jurisdiction over a
Fund, it will limit its use of futures contracts and futures options to hedging
transactions. For example, a Fund might use futures contracts to hedge against
anticipated changes in
<PAGE>
interest rates that might adversely affect either the value of a Fund's
securities or the price of the securities that a Fund intends to purchase. A
Fund's hedging may include sales of futures contracts, as an offset against the
effect of expected increases in interest rates, and purchases of futures
contracts as an offset against the effect of expected declines in interest
rates. Although other techniques could be used to reduce a Fund's exposure to
interest rate fluctuations, a Fund may be able to hedge its exposure more
effectively and perhaps at a lower cost by using futures contracts and futures
options.
The success of any hedging technique depends on the Adviser and/or Sub- Adviser
for The AAL International Fund correctly predicting changes in the level and
direction of interest rates and other factors. Should those predictions be
incorrect, the Fund's return might have been better had hedging not been
attempted; however, in the absence of the ability to hedge, the Adviser might
have taken portfolio actions in anticipation of the same market movements with
similar investment results, but presumably at greater transaction costs.
A Fund will only enter into futures contracts and futures options that are
standardized and traded on a U.S. exchange, board of trade, or similar entity,
or quoted on an automated quotation system.
When a purchase or sale of a futures contract is made by a Fund, a Fund is
required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. Government securities ("initial margin"). The
margin required for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the contract. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract that is returned to a Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. A Fund
expects to earn interest income on its initial margin deposits. A futures
contract held by a Fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day a Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures contract.
This process is known as "marking to market." Variation margin does not
represent a borrowing or loan by a Fund, but is instead a settlement between a
Fund and the broker of the amount one would owe the other if the futures
contract expired. In computing daily net asset value, a Fund will mark to market
its open futures positions.
A Fund also is required to deposit and maintain margin on any put and call
options on futures contracts that it has written. Such margin deposits will vary
depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by a Fund.
<PAGE>
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, a Fund realizes a capital
gain. If the offsetting purchase price is more, a Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, a Fund realizes a capital gain. If the offsetting price is less, a Fund
realizes a capital loss. The transaction costs must also be included in these
calculations.
Risks Associated with Futures
There are several risks associated with the use of futures contracts and futures
options as hedging techniques. A purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract. There
can be no guarantee that there will be a correlation between price movements in
the hedging vehicle and in the portfolio securities being hedged. In addition,
there are significant differences between the securities and futures markets
that could result in an imperfect correlation between the markets, causing a
given hedge not to achieve its objectives. The degree of imperfection of
correlation depends on circumstances such as: variations in the speculative
market demand for futures, futures options and debt securities, including
technical influences in futures and futures options trading and differences
between the financial instruments being hedged and the instruments underlying
the standard contracts available for trading, such as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day,
and therefore does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures or futures options position. In such a case, a Fund
would
<PAGE>
continue to be required to meet margin requirements until the position is
closed. In addition, some of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
Limitations on Options and Futures
A Fund will not enter into a futures contract or purchase an option there on If:
the initial margin deposits for futures contracts held by a Fund plus premiums
paid by it for open futures options positions less the amount by which any such
positions are "in the money" exceed 5% of a Fund's net assets. A call option is
"in the money" if the value of the futures contract that is the subject of the
option exceeds the exercise price. A put option is "in the money" if the
exercise price exceeds the value of the futures contract that is the subject of
the option.
When purchasing a futures contract or writing a put on a futures contract, a
Fund must maintain with its custodian (or broker, if legally permitted) cash or
cash equivalents (including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, a Fund similarly
will maintain with its custodian cash or cash equivalents (including any margin)
equal to the amount such option is in the money until the option expires or is
closed out by a Fund.
A Fund may not maintain open short positions in futures contracts, call options
written on futures contracts or call options written on indexes if, in the
aggregate, the market value of all such open positions exceeds the current value
of the securities in its portfolio, plus or minus unrealized gains and losses on
the open positions, adjusted for the historical relative volatility of the
relationship between the portfolio and the positions. For this purpose, to the
extent a Fund has written call options on specific securities in its portfolio,
the value of those securities will be deducted from the current market value of
the securities portfolio.
In order to comply with Commodity Futures Trading Commission Rules and thereby
avoid being deemed a "commodity pool operator," the "underlying commodity
value," of each long position in a commodity contract in which a Fund invests
will not at any time exceed the sum of:
(1) The value of short-term U.S. debt obligations or other U.S. dollar
denominated, high-quality short-term money market instruments and cash set aside
in an identifiable manner, plus any funds deposited as margin on the contract;
(2) Unrealized appreciation on the contract held by the broker; and
<PAGE>
(3) Cash proceeds from existing investments due in not more than 30
days.
"Underlying commodity value" means the size of the contract multiplied by the
daily settlement price of the contract.
As long as the Fund continues to sell its shares in certain states, the Fund's
options transactions will also be subject to some of the non-fundamental
restrictions set forth in this Statement of Additional Information.
Taxation of Options and Futures
If a Fund exercises a call or put option it owns, the premium paid for the
option is added to the cost of the security purchased (call) or deducted from
the proceeds of the sale (put). For cash settlement of options and futures
options, the difference between the cash received at exercise and the premium
paid is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain or loss.
If an option was "in the money" at the time it was written and the security
covering the option was held for more than one year prior to the writing of the
option, any loss realized as a result of a closing purchase transaction will be
long-term for federal tax purposes. The holding period of the securities
covering an "in the money" option will not include the period of time the option
is outstanding.
A futures contract held until delivery results in capital gain or loss equal to
the difference between the price at which the futures contract was entered into
and the settlement price on the earlier of delivery notice date or expiration
date. If a Fund delivers securities under a futures contract, a Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund generally is required to recognize as
income for each taxable year its net unrealized gains and losses as of the end
of the year on options, futures and futures options positions ("year-end mark to
market"). Generally, any gain or loss recognized with respect to such positions
(either by year-end mark to market or by actual closing of the positions) is
considered to be 60% long term and 40% short term, without regard to the holding
periods of the contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain positions (including
options, futures and futures options positions, the related securities and
certain successor positions thereto) may be deferred to a later taxable year.
Sale of futures contracts or writing of call options (or futures call options)
or buying put options (or futures put options) which are intended to hedge
against a change in the value of securities held by a Fund may affect the
holding period of the hedged securities.
<PAGE>
A Fund distributes to shareholders annually any net capital gains that have been
recognized for federal income tax purposes (including year-end mark-to-market
gains) on options and futures transactions. Such distributions are combined with
distributions of capital gains realized on a Fund's other investments and
shareholders are advised of the nature of the payments. Federal Tax Treatment of
Options, Futures Contracts and Forward Foreign Exchange Contracts
A Fund may enter into certain option, futures, and forward foreign exchange
contracts that will be treated as Section 1256 contracts or straddles under the
Internal Revenue Code.
Transactions that are considered Section 1256 contracts will be considered to
have been closed at the end of a Fund's fiscal year and any gains or losses will
be recognized for tax purposes at that time. Such gains or losses from the
normal closing or settlement of such transactions will be characterized as 60%
long-term capital gain or loss and 40% short-term capital gain or loss
regardless of the holding period of the instrument. A Fund will be required to
distribute net gains on such transactions to shareholders even though it may not
have closed the transaction and received cash to pay such distribution.
Options, futures and forward foreign exchange contracts that offset a foreign
dollar denominated bond or currency position may be considered straddles for tax
purposes in which case a loss on any position in a straddle will be subject to
deferral to the extent of unrealized gain in an offsetting position.
In order for a Fund to continue to qualify for federal income tax treatment as a
regulated investment company, at least 90% of its gross income for a taxable
year must be derived from qualifying income (i.e., dividends, interest, income
derived from loans of securities, and gains from the sale of securities or
currencies). Pending tax regulations could limit the extent that net gains
realized from options, futures or foreign forward exchange contracts on
currencies are qualifying income for purposes of 90% requirement. In addition,
gains realized on the sale of other disposition of securities, including
options, futures or foreign forward exchange contracts on securities or
securities indices and, in some cases, currencies, held for less than three
months, must be limited to less than 30% of a Fund's annual gross income. In
order to avoid realizing excessive gains on securities or currencies held less
than three months, a Fund may be required to defer the closing out options,
futures or foreign forward exchange contracts beyond the time when it would
otherwise be advantageous to do so. It is anticipated that the unrealized gains
on Section 1256 options, future and foreign forward exchange contracts, which
had been open for less than three months as of the end of a Fund's fiscal year
and which are recognized for tax purposes, will be considered gains on
securities or currencies held for three months or more for purposes of the 30%
test.
<PAGE>
Foreign Securities - The AAL Capital Growth, Mid Cap Stock, Small Cap Stock,
and Bond Funds
The AAL Capital Growth, Mid Cap Stock and Small Cap Stock Funds may invest in
foreign securities, but only if such securities are listed and traded on a U.S.
national securities exchange. The AAL Bond Fund may invest in debt securities of
foreign issuers that are payable in U.S. dollars. Foreign securities may
represent a greater degree of risk (including risks relating to tax provisions
or expropriation of assets) than do securities of domestic issuers. These Funds
do not intend to invest more than 5% of their net assets in foreign securities.
Foreign Securities - The AAL International, Utilities and High Yield Bond Funds
The AAL Utilities Fund may invest up to 20% of its net assets in foreign
securities. The Fund may also invest in foreign securities in domestic markets
through depository receipts and securities of foreign issuers that are traded on
a registered American stock exchange or the NASDAQ National Market System
without regard to the 15% limitation.
The AAL High Yield Bond Fund may invest up to 15% of its net assets in foreign
bonds. At this time, the Fund intends to limit its purchases of foreign bonds to
those trading in the U.S.
The AAL International Fund normally invests at least 65% of its total assets in
foreign securities primarily trading in at least 3 different countries, not
including the U.S.
Foreign investments may involve risks that are in addition to the risks inherent
in U.S. securities. In many countries there is less public information available
about issuers and foreign companies may not be subject to uniform accounting,
auditing and financial reporting standards. The value of foreign investments may
rise or fall because of changes in currency exchange rates, and a Fund may incur
costs in converting securities denominated in foreign currencies into U.S.
dollars. Dividends and interest on foreign securities may be subject to foreign
withholding taxes, which would reduce a Fund's income without providing a tax
credit to shareholders. Obtaining and enforcing judgments, when necessary, in
foreign countries may be more difficult and expensive than in the U.S. Although
these Funds intend to invest in securities of issuers of stable and developed
countries, there is the possibility of expropriation, confiscatory taxation,
nationalization, currency blockage or political or social instability that could
affect investments in such countries.
The AAL International and Utilities Funds may invest in ADRs without limit. ADR
facilities may be either "sponsored" or "unsponsored." While similar,
distinctions exist relating to the rights and duties of ADR holders and market
practices. A depository may
<PAGE>
establish an unsponsored facility without the participation by or consent of the
issuer of the deposited securities, although a letter of non-objection from the
issuer is often requested. Holders of unsponsored ADRs generally bear all the
costs of such facility, which can include deposit and withdrawal fees, currency
conversion fees and other service fees. The depository of an unsponsored
facility may be under no duty to distribute shareholder communications from the
issuer or to pass through voting rights. Issuers of unsponsored ADRs are not
obligated to disclose material information in the U.S. and, therefore, there may
not be a correlation between such information and the market value of the ADR.
Sponsored facilities enter into an agreement with the issuer that sets out
rights and duties of the issuer, the depository and the ADR holder. This
agreement also allocates fees among the parties. Most sponsored agreements also
provide that the depository will distribute shareholder notices, voting
instructions and other communications. The AAL International and Utilities Funds
may invest in sponsored and unsponsored ADRS.
In addition to ADRS, The AAL International Fund may hold foreign securities in
the form of American Depository Shares ("ADSs"), Global Depository Receipts
("GDRs") and European Depository Receipts ("EDRs), or other securities
convertible into foreign securities. These receipts may not be denominated in
the same currency as the underlying securities. Generally, American banks or
trust companies issue ADRs and ADSs, which evidence ownership of underlying
foreign securities. GDRs represent global offerings where an issuer issues two
securities simultaneously in two markets, usually publicly in a non-U.S. market
and privately in the U.S. market. EDRs (sometimes called Continental Depository
Receipts ("CDRs")) are similar to ADRs, but usually issued in Europe. Typically
issued by foreign banks or trust companies, EDRs and CDRs evidence ownership of
foreign securities. Generally, ADRs and ADSs in registered form trade in the
U.S. securities markets, GDRs in the U.S. and European markets, and EDRs and
CDRs (in bearer form) in European markets. The Adviser (and/or Sub-Adviser for
The AAL International Fund) considers investments in ADRs, ADSs, GDRs, EDRs and
CDRs as investments in the underlying equity securities for purposes of
diversification.
Classification of Foreign Markets -- The AAL International Fund
Foreign markets are often classified as mature or emerging. The countries in
which The AAL International Fund may invest are classified below. The Fund may
also invest in additional countries when such investments are consistent with
the Fund's objective and policies.
Mature: Australia, Austria, Belgium, China, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland, United Kingdom and United States.
<PAGE>
Emerging: Argentina, Brazil, Chile, Czech Republic, Ecuador, Greece, Hungary,
India, Indonesia, Jamaica, Kenya, Israel, Jordan, Malaysia, Mexico, Morocco,
Nigeria, Pakistan, People's Republic of China, Peru, Phillippines, Poland, South
Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela and
Vietnam.
Foreign Currency Transactions -- The AAL International, Utilities and High Yield
Bond Funds
To manage the currency risk accompanying investments in foreign securities and
to facilitate the purchase and sale of foreign securities, The AAL
International, Utilities Fund and High Yield Bond Funds may engage in foreign
currency transactions on a spot (cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into contracts to purchase
or sell foreign currencies at a future date ("forward foreign currency"
contracts or "forward" contracts).
A forward foreign currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are principally traded in the inter-bank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement and no
commissions are charged at any stage for trades.
When a Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S. dollar
price of the security. By entering into a forward contract for the purchase or
sale of a fixed amount of U.S. dollars equal to the amount of foreign currency
involved in the underlying security transaction, the Fund can protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date the security is purchased or sold and the date on which the
payment is made or received.
When the Adviser and/or Sub-Adviser for the International Fund believes that a
particular foreign currency may suffer a substantial decline against the U.S.
dollar, they may enter into a forward contract to sell a fixed amount of the
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible since the future value of
<PAGE>
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult and the successful execution of a
short-term hedging strategy is highly uncertain. A Fund will not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's securities or other assets
denominated in that currency. Under normal circumstances, the Adviser and/or
Adviser for the International Fund considers the long term prospects for a
particular currency and incorporate the prospects into their overall long term
diversification strategies. The Adviser and Sub-Adviser for The AAL
International Fund believes that it is important to have the flexibility to
enter into such forward contracts when they determine that the best interests of
a Fund will be served.
At the maturity of a forward contract, a Fund may either sell the portfolio
securities and make delivery of the foreign currency, or it may retain the
securities and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of foreign currency.
If a Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a forward contract to sell the
foreign currency. Should forward prices decline during the period when the Fund
entered into the forward contract for the sale of a foreign currency and the
date it entered into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
It is important to note that: (1) a foreign currency hedge transactions does not
protect against or eliminate fluctuations in the prices of particular portfolio
securities (i.e., if the price of such securities decline due to an issuer's
deteriorating credit situation); and (2) it is impossible to forecast with
precision the market value of securities at the expiration of a forward
contract. Accordingly, the Fund may have to purchase additional foreign currency
on the spot market (and bear the expense of such purchase) if: (1) the market
value of a Fund's securities are less than the amount of the foreign currency
the Fund is obligated to deliver; and (2) a decision is made to sell the foreign
securities and make delivery of the foreign currency upon expiration of the
contract. Conversely, the Fund may have to sell some of its foreign currency
received upon the sale of a portfolio security if the market value of the Fund's
securities exceed
<PAGE>
the amount of foreign currency the Fund is obligated to deliver. A Fund's
dealings in forward foreign currency exchange contracts will be limited to the
transactions described above. Also a Fund may not be able to hedge against a
currency devaluation at a price above the anticipated level where the market
itself has generally anticipated the currency's devaluation.
Although the Funds value their assets daily in terms of U.S. dollars, they do
not intend to convert their holdings of foreign currencies into U.S. dollars on
a daily basis. A Fund will do so from time to time and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they realize a profit based on the difference (the
"spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer.
Options and Futures Relating to Foreign Currencies - The AAL International,
Utilities and High Yield Bond Funds
The AAL International, Utilities and High Yield Bond Funds may purchase and sell
currency futures and purchase and write currency options to increase or decrease
their exposure to different foreign currencies. They also may purchase and write
currency options in conjunction with the currency futures or forward contracts
of another series of the Funds. The uses and risks of currency options and
futures are similar to options and futures relating to securities or indices, as
discussed above.
Currency futures contracts are similar to forward foreign currency contracts,
except that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally is
purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase the
underlying currency, and the purchaser of a currency put obtains the right to
sell the underlying currency.
Currency futures and options values can be expected to correlate with exchange
rates, but may not reflect other factors that affect the value of the respective
Fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect a
particular Fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of the Fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the Fund's investments exactly overtime.
<PAGE>
Privately Issued Securities: The AAL Money Market Fund
Securities in which The AAL Money Market Fund may invest include securities
issued by major corporations without registration under the Securities Act of
1933 in reliance on certain exemptions, including the "private placement"
exemption afforded by Section 4(2) of that Act. Section 4(2) paper is restricted
as to disposition under the federal securities laws in that any resale must be
made in an exempt transaction. This paper normally is resold to other
institutional investors through or with the assistance of investment dealers who
make a market in it, thus providing liquidity. In the opinion of the Adviser,
Section 4(2) paper is no less liquid or saleable than commercial paper issued
without legal restrictions on disposition. However, should a section 4(2) paper
issue be deemed illiquid by the Adviser, the Fund would purchase such security
only in accordance with its limitations on illiquid securities. See "Additional
Investment Factors and Risks Regarding the Funds -- Illiquid and Restricted
Securities" in the Prospectus.
Variable Rate Demand Notes--The AAL Capital Growth, Mid Cap Stock, Small Cap
Stock, International, Bond, High Yield Bond and Money Market Funds
The AAL Capital Growth, Mid Cap Stock, Small Cap Stock, International, Bond,
High Yield Bond and Money Market Funds (subject to Rule 2a-7) may purchase
variable rate master demand notes, which are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. Although the notes are not normally traded and there may be no
secondary market in the notes, the Funds may demand payment of principal at any
time. The notes purchased by the Funds must either be rated in one of the two
highest rating categories by a Nationally Recognized Statistical Rating
Organization or have been issued by an issuer that has received a rating from
the requisite Nationally Recognized Statistical Rating Organizations, in the top
categories with respect to a class of short-term debt obligations that is now
comparable in priority and security with the instrument. If an issuer of a
variable rate master demand note defaulted on its payment obligation, the Funds
might be unable to dispose of the note because of the absence of a secondary
market and might, for this or other reasons, suffer a loss to the extent of the
default. The Funds invest in variable rate master demand notes only when the
investment adviser deems the investment to involve minimal credit risk.
Investments In Other Investment Companies
An investment by a Fund in other investment companies, which is limited by
fundamental investment restriction 14 below, may cause a Fund to increase
payments of administration and distribution expenses.
<PAGE>
Investment Restrictions
Each Fund operates under the following investment restrictions. A Fund
may not:
(1) invest more than 5% of its net assets (or 5% of The AAL
International Fund's total assets or 5% of The AAL High Yield Bond
Fund's total assets), taken at value at the time of each investment, in
the securities (including repurchase agreements) of any one issuer (for
this purpose, the issuer(s) of a debt security being deemed to be only
the entity or entities whose assets or revenues are subject to the
principal and interest obligations of the security), except that up to
25% of its net assets (or 25% of The AAL lnternational Fund's total
assets or 25% of The AAL High Yield Bond Fund's total assets) may be
invested without regard to this limitation and provided that such
restrictions shall not apply to obligations issued or guaranteed by the
U.S. Government or any agency or instrumentality thereof;
(2) purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities,
but a Fund may make margin deposits in connection with transactions in
options, futures and options on futures;
(3) make short sales of securities or maintain a short position, or
write, purchase, or sell puts, calls, straddles, spreads, or
combinations thereof, except for the described transactions in options,
futures, options on futures and short sales against the box;
(4) make loans to other persons, except that the Fund reserves freedom
of action, consistent with its other investment policies and
restrictions and as described in the Prospectus and this Statement, to:
(a) invest in debt obligations, including those which are either
publicly offered or of a type customarily purchased by institutional
investors, even though the purchase of such debt obligations may be
deemed the making of loans; (b) enter into repurchase agreements; and
(c) lend portfolio securities, provided that the Fund may not loan
securities if, as a result, the aggregate value of all securities
loaned would exceed 33% of its total assets (taken at market value at
the time of such loan);
(5) issue senior securities or borrow, except that the Fund may borrow
in amounts not in excess of 10% of its net assets, taken at current
value, and then only from banks as a temporary measure for
extraordinary or emergency purposes (the Funds will not borrow to
increase income, but only to meet redemption requests which otherwise
might require untimely dispositions of portfolio securities; interest
paid on any such borrowings will reduce net income);
<PAGE>
(6) mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by a Fund
except as may be necessary in connection with and subject to the limits
in restriction (5);
(7) underwrite any issue of securities, except to the extent that the
purchase of securities directly from an issuer thereof in accord with a
Fund's investment objectives and policies may be deemed to be
underwriting or to the extent that in connection with the disposition
of portfolio securities a Fund may be deemed an underwriter under
federal securities laws;
(8) purchase or sell real estate, or real estate limited partnership
interests provided that a Fund may invest in securities secured by real
estate or interests therein or issued by companies that invest in real
estate or interests therein;
(9) purchase or sell commodities or commodity contracts except that a
Fund may purchase or sell futures and options thereon for hedging
purposes as described this Statement;
(10) invest more than 25% of its net assets (or 25% of The AAL
International Fund's total assets or 25% of The AAL High Yield Bond
Fund's total assets), taken at current value at the time of each
investment, in securities of non governmental issuers whose principal
business activities are in the same industry, except for The AAL
Utilities Fund. [The Funds interpret this restriction to prohibit any
Fund from investing 25% or more of its net assets (or 25% or more of
The AAL International Fund's total assets or 25% or more of The AAL
High Yield Bond Fund's total assets) in any single industry or issuer
(except the U.S. government or any agency or instrumentality thereof).
Under normal circumstances, The AAL Utilities Fund invests at least 65%
of its total assets in the securities of public utility companies];
(11) invest in oil, gas or mineral related programs or leases except as
may be included in the definition of public utility, although a Fund
may invest in securities of enterprises engaged in oil, gas or mineral
exploration;
(12) invest in repurchase agreements maturing in more than seven days
or in other securities with legal or contractual restrictions on resale
if, as a result thereof, more than 10% of a Fund's net assets (taken at
current value at the time of such investment) would be invested in such
securities;
(13) except for The AAL High Yield Bond Fund, invest in any security if
as a result a Fund would have more than 5% of its net assets invested
in securities of companies which, together with any predecessors, have
been in continuous operation for less than three years;
<PAGE>
(14) purchase securities of other investment companies, if the purchase
would cause more than 10% of the value of a Fund's net assets (or 10%
of the value of The AAL International Fund's total assets or 10% of the
value of The AAL High Yield Bond Fund's total assets), to be invested
in investment company securities provided that: (a) no investment will
be made in the securities of any one investment company if immediately
after such investment more than 3% of the outstanding voting securities
of such company would be owned by a Fund or more than 5% of the value
of a Fund's net assets (or 5% of the value of The AAL International
Fund's total assets or 5% of the value of The AAL High Yield Bond
Fund's total assets) would be invested in such company; and (b) no
restrictions shall apply to a purchase of investment company securities
in connection with a merger, consolidation acquisition or
reorganization; or
(15) purchase more than 10% of the outstanding voting securities of an
issuer or invest for the purpose of exercising control or management.
Each of the above restrictions (1) through (15), as well as each Fund's
investment objective, except for The AAL High Yield Bond Fund, is a fundamental
policy. In addition, each Fund may not, so long as it publicly offers its shares
for sale in certain states: (a) buy or sell a call option unless, (i) the option
is issued by the Options Clearing Corporation, an exchange, NASDAQ or similar
entity, and (ii) the security underlying the option is listed on an exchange or
similar entity or is a U.S. Government or Federal agency obligation; (b) invest
more than 5% of its net assets (valued at the time of investment) in warrants,
nor more than 2% of its net assets in warrants that are not listed on the New
York or American stock exchange; (c) write a put option except as a closing
transaction or purchase a put option if the aggregate premiums paid for all such
options exceed 2% of its net assets (less the amount by which any such positions
are in the money), excluding puts purchased as closing transactions; (d)
purchase or retain securities of any issuer if 5% of the securities of such
issuer are owned by those officers and directors of the Fund or by partners of
its Adviser who own individually more than 1/2 of 1 % of its securities; (or (e)
with regard to The AAL Money Market Fund, invest in warrants or other mutual
fund shares not in connection with a merger, consolidation or reorganization.
Purchases And Redemptions; Pricing Considerations
Purchases and redemptions are discussed in the Prospectus under the headings
"How to Buy Shares," "How to Sell (Redeem) Shares," and "Net Asset Value," and
that information is incorporated herein by reference.
The Funds' net asset value is determined only on the days on which the New York
Stock Exchange is open for trading. That Exchange is regularly closed on
Saturdays and Sundays and on New Years' Day, the third Monday in February, Good
<PAGE>
Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving and
Christmas. If one of these holidays falls on a Saturday or Sunday, the Exchange
will be closed on the preceding Friday or the following Monday, respectively.
The Funds determine the net asset value by adding up the value of a Fund's
assets, subtracting the Fund's liabilities, and dividing the balance by the
total number of shares outstanding. In determining the current market value for
securities traded or listed on an exchange, we use the last sale price on the
exchange where the securities primarily trade. For securities that have readily
available market quotations, we use an over-the-counter or exchange bid
quotation. When a Fund holds securities or other assets that do not have readily
available market quotations or are restricted, the Fund values them at fair
market value, as determined in good faith by management under the direction of
the Board of Trustees. The Funds may use pricing services in determining the
current or fair market value of securities held in their portfolios. The Funds
value money market instruments with a remaining maturity of 60 days or less on
an amortized costs basis. The Funds comply with the SEC's requirements for using
an amortized cost valuation method.
Reliable market quotations are not considered to be readily available for many
long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities or foreign securities. The Funds may, and generally will, value debt
securities on the basis of valuations furnished through a pricing service or
services approved by the Board of Trustees. A pricing service generally will
determine valuations based upon normal, institutional-size trading units of such
securities using market transactions for comparable securities and various
relationships between securities generally recognized by institutional traders.
Management prices foreign securities in terms of U.S. dollars at the official
exchange rate. Alternatively, it may price these securities at the average of
the current bid and asked price of such currencies against the dollar last
quoted by a major bank that is a regular participant in the foreign exchange
market, or on the basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If management does not have either of
these alternatives available to it or the alternatives do not provide a suitable
method for converting a foreign currency into U.S. dollars, the Board of
Trustees in good faith will establish a conversion rate for such currency.
Generally, U.S. Government securities and other fixed income securities complete
trading at various times prior to the close of the New York Stock Exchange. For
purposes of computing net asset value, the Funds use the market value of such as
of the time their trading day ends. Occasionally, events affecting the value of
such securities may occur between such times and the close of the New York Stock
Exchange, which events will not be reflected in the computation of a Fund's net
asset
<PAGE>
value. If events materially affecting the value of a Fund's securities occur
during such a period, then these securities will be valued at their fair value
as determined in good faith by the Trustees.
Foreign securities trading may not take place on all days when the NYSE is open,
or may take place on Saturdays and other days when NYSE is not open and the
Fund's net asset value is not calculated. When determining the net asset value
of the Fund, management values foreign securities primarily listed and/or traded
in foreign markets at their market value as of the close of the last primary
market in which the securities traded. Unless material as determined by
management under the supervision of the Board of Trustees, events affecting the
valuation of Fund securities occurring between the time its net asset value is
determined and the close of the NYSE will not be reflected in such asset value.
As a result, the Fund's net asset value may be significantly affected by such
trading on days when the Fund is not accepting purchases or redemptions.
The Funds intend to pay all redemptions in cash and are obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
assets of the Fund during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in kind, the
redeeming shareholders might incur brokerage fees in selling the securities
received in the redemptions.
Each Fund reserves the right to suspend or postpone redemptions during any
period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the Securities and Exchange Commission, or that the Exchange is
closed for other than customary weekend and holiday closings; (b) the Securities
and Exchange Commission has by order permitted such suspension; or (c) an
emergency, as determined by the Securities and Exchange Commission, exists,
making disposal of portfolio securities or valuation of net assets of the Fund
not reasonably practicable.
The AAL Money Market Fund - Amortized Cost Valuation
The AAL Money Market Fund values its portfolio securities on the basis of their
amortized cost. Amortized cost is an approximation of market value, whereby the
difference between acquisition cost and value at maturity is amortized on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account and thus the amortized cost method of valuation
may result in the value of a security being higher or lower than its actual
market value. In addition, if a large number of redemptions take place at a time
when interest rates have increased, the Fund may have to sell portfolio
securities prior to maturity and at a price which might not be as desirable.
<PAGE>
Although there is no assurance that it will be able to do so, the Fund will use
its best efforts to maintain a constant net asset value of $1.00 per share for
purchases and redemptions. The Board of Trustees has established procedures for
this purpose, which procedures include a review of the extent of any deviation
of net asset value per share, based on available market quotations, from the
$1.00 amortized cost per share. Should that deviation exceed 1/2 of 1% for the
Fund, the Board of Trustees will promptly consider whether any action should be
initiated to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends, and
utilizing a net asset value per share as determined by using available market
quotations. The Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less and will not purchase any instrument deemed to have a
remaining maturity greater than 397 days, will limit portfolio investments,
including repurchase agreements, to those dollar denominated instruments that
the Board of Trustees determines present minimal credit risks as advised by the
Adviser, and will comply with the requirements as to the quality of certain
portfolio securities specified by the SEC for money market funds using the
amortized cost method of valuation and with certain reporting and record keeping
procedures. There is no assurance that constant net asset value can be
maintained at all times. In the event amortized cost ceases to represent fair
value, the Board will take appropriate action.
Letter of Intent
Under a Letter of Intent, as described in the Prospectus, shares totaling 5% of
the dollar amount indicated in the letter will be held in escrow by the Transfer
Agent in the name of the purchaser. The Letter of Intent does not obligate the
investor to purchase, nor a Fund to sell, the indicated amount. In the event the
Letter of Intent goal is not achieved within the 13-month period, the Purchaser
is required to pay the difference between the sales commission otherwise
applicable to the purchases made during this period and sales charges actually
paid. The Distributor will liquidate sufficient escrowed shares to obtain such
difference after expiration of the Letter of Intent.
Investment Advisory Services
Please refer to the description of the Adviser, Advisory Agreement and Fees
under "Management of the Trust" in the Prospectus, which is incorporated herein
by reference.
The following Executive Officers of the Trust also serve as officers or
directors of the Adviser as shown below:
<PAGE>
H. Michael Spence President, Director, President of AAL Capital
222 West College Avenue Management Corporation since 1994, Vice
Appleton, WI 54919-0007 President 1991 to 1994, and Director from 1988 to
DOB 6/12/35 1991
Robert G. Same Secretary; Director, Senior Vice President and
222 West College Avenue Secretary of AAL Capital Management
Appleton, WI 54919-0007 Corporation since 1987
DOB 7/28/45
Terrance P. Gallagher Treasurer, Director, Chief Financial Office of AAL
222 West College Avenue Capital Management Corporation since 1994,
Appleton, WI 54919 Senior Vice President since 1987 and Comptroller
DOB 9/20/58 since 1992
Compensation of The Board of Trustees
The Fund makes no payments to any of its officers for services. However, any of
the Trustees who are not officers or employees of the adviser or its parent are
paid, by The AAL Mutual Funds, an annual fee of $10,000 and a fee of $1,000 per
meeting. These fees are assessed ratably to each series of The AAL Mutual Funds.
Trustees are reimbursed by The AAL Mutual Funds for any expenses they may incur
by reason of attending such meetings or in connection with services they may
perform for The AAL Mutual Funds. For the fiscal year ended April 30, 1996, The
AAL Mutual Funds paid an aggregate of $93,150.00 in Trustees' fees and expenses.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5) (6)
Name of Capacities in Aggregate Pension or Estimated Total
Person which Remuneration Retirement Annual Compensation
Remuneration Benefits Benefits Upon from
Received Accrued Retirement Registrant and
During Fund Complex
Registrant's Paid to
Last Fiscal Trustees*
Year
Ronald G. Trustee - - - N/A
Anderson
DOB 10/2/48
John H. Trustee - - - $1,500
Pender,
DOB 5/25/30
Richard L. Trustee - - - -
Gunderson,
DOB 6/14/33
<PAGE>
F. Gregory Trustee $16,000 - - $23,500
Campbell,
DOB 12/16/39
D.W. Russler, Trustee $16,000 - - $23,500
DOB 10/28/28
Richard L. Trustee $16,000 - - $23,500
Gady,
DOB 2/28/43
Lawrence M. Trustee $16,000 - - $23,500
Woods,
DOB 4/14/32
</TABLE>
* The Fund complex includes the AAL Variable Product Series Fund, Inc.
The Adviser furnishes the Funds, at the Adviser's expense, with all office space
and facilities, equipment and clerical personnel necessary for carrying out its
duties under the Advisory Agreement. The Adviser also will pay all compensation
of Trustees, officers and employees of the Trust who are affiliated persons of
the Adviser. All costs and expenses not expressly assumed by the Adviser under
the Advisory Agreement are paid by the Funds, including, but not limited to: (a)
interest and taxes; (b) brokerage commissions; (c) insurance premiums; (d)
compensation and expenses of its Trustees other than those affiliated with the
Adviser; (e) legal and audit expenses; (f) fees and expenses of the Trust's
custodian and transfer agent; (g) expenses incident to the issuance of the
Trust's shares, including stock certificates and issuance of shares on the
payment of, or reinvestment of, dividends; (h) fees and expenses incident to the
registration under Federal or state securities laws of the Trust or its shares,
(i) expenses of preparing, printing and mailing reports and notices and proxy
material to shareholders of the Trust; (j) all other expenses incidental to
holding meetings of the Trust's shareholders; (k) dues or assessments of or
contributions to the Investment Company Institute or its successor, or other
industry organizations; (l) such non recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations which the Trust may
have to indemnify its officers and Trustees with respect thereto; and (m) all
expenses which the Trust agrees to bear in any distribution agreement or in any
plan adopted by the Trust pursuant to Rule 12b-1 under the Act.
The Adviser has agreed to reimburse each of the Funds monthly to the extent that
total annual expenses (excluding taxes, interest and brokers' commissions and
other normal charges incident to the purchase and sale of portfolio securities,
but including fees paid to the Adviser and/or a Sub-Adviser) exceeds the
applicable limits prescribed by any state in which the shares of such Fund are
being offered for sale.
The Funds believe that currently the most restrictive state limits on annual
expenses during any fiscal year are 2 1/2% of a Fund's average daily net assets
up to
<PAGE>
$30 million, 2% of the next $70 million and 1 1/2% thereafter. The Adviser
reimbursed annual expenses in excess of 1.6% for The AAL Utilities Fund through
April 30, 1994. In addition, the Adviser voluntarily assumed annual expenses of
The AAL Bond Fund in excess of: 0.70 of 1 % of average daily net assets of the
Fund for the period from September 19, 1987 through March 31, 1988; 0.80 of 1 %
of average daily net assets for the period from April 1, 1988 through January
31, 1989; 0.90 of 1% of average daily net assets from February 1, 1989 through
July 31, 1989; and 1.0% of average daily net assets from August 1, 1989 through
December 31, 1991. The Adviser reimbursed The AAL Money Market Fund for all
expenses of that Fund in excess of the following percentages of average daily
net assets for the dates indicated: all expenses, March 1988; 0.10 of 1%, April
1988; 0.20 of 1%, May 1 through July 31, 1988; 0.30 of 1%, August 1, 1988; 0.50
of 1%, September 1 through October 3, 1988; 0.60 of 1%, October 4 through 16,
1988; 0.70 of 1%, October 17, 1988, through January 31, 1989; 0.80 of 1%,
February 1 through 14, 1989; 0.90 of 1%, February 15 through 28, 1989; and 1.0%,
March 1, through May 30, 1989. The Adviser reimbursed The Money Market Fund by
waiving 0.10 of 1% of its Advisory fee (to 0.30 of 1%), from August 19, 1992 and
waiving the entire advisory fee from November 1, 1995. These waivers are
voluntary and may be discontinued at any time. The Adviser reimbursed The AAL
Municipal Bond Fund for all expenses of that Fund in excess of: 0.80 of 1% of
average daily net assets for the period August 1, 1988 through January 31, 1989;
and 0.90 of 1% of average daily net assets from February 1, 1989 through
December 31, 1991. The assumption of expenses may be initiated, modified or
discontinued by the Adviser, for any Fund, at any time. The Funds have paid
advisory fees to the Adviser for the past three fiscal years ended April 30,
1996 as follows:
For the Year Ended April 30, 1994 April 30, 1995 April 30, 1996
The AAL Capital $5,418,238 $5,910,666 $7,332,620
Growth Fund
The AAL Mid Cap $456,993 $1,443,406 $2,207,510
Stock Fund
The AAL Small Cap N/A N/A N/A
Stock Fund
The AAL International N/A N/A $182,656
Fund
The AAL Utilities $3,374 $260,436 $445,179
Fund
The AAL Bond Fund $2,430,869 $2,448,730 $2,410,603
The AAL Municipal $1,924,353 $2,134,525 $2,215,237
Bond Fund
<PAGE>
The AAL High Yield N/A N/A N/A
Bond Fund
The AAL Money $363,583 $335,173 $448,619
Market Fund
From its advisory fees, the Adviser pays the sub-advisory fees for The AAL
International Fund in accordance with the formula set forth in the Prospectus.
Prior to November 1, 1995, the Adviser paid sub-advisory fees from the Advisory
fees received for The AAL Mid Cap Stock (f/k/a Smaller Company Stock Fund),
Capital Growth, Utilities, Bond, Municipal Bond and Money Market Funds.
The Advisory Agreement and Sub-Advisory Agreement for The AAL International Fund
provide that subject to Section 36 of the Act, neither the Adviser nor
Sub-Adviser shall be liable to the Trust for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission in
the management of the Trust and the performance of their duties under the
Agreement, except for willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of reckless disregard of their
obligations and duties under the agreements.
The Trust has agreed to use its best efforts to change its name if the Adviser
ceases to act as such with respect to the Funds. The continued use of the
Trust's present name would create confusion in the context of the Adviser or its
parent's business.
The Investment Advisory Agreement was approved by the Board of Trustees,
including a majority of the Trustees who were not interested persons (as defined
in the Act) of any party to the agreement on August 21, 1990, and was approved
by the shareholders of The AAL Municipal Bond Fund on November 27, 1990, and The
AAL Capital Growth, Bond and Money Market Funds on December 20, 1990. After
December 20, 1990, the Advisory Agreement was approved for:
The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock Fund)
by the Board of Trustees on May 18, 1993, and the sole shareholder on
June 30, 1993;
The AAL Utilities Fund by the Board of Trustees on February 24, 1994,
and the sole shareholder on March 18, 1994;
The AAL International Fund by the Board of Trustees on May 23, 1995,
and the sole shareholder on July 31, 1995;
<PAGE>
The AAL Small Cap Stock Fund by the Board of Trustees on February 23,
1996.
The AAL High Yield Bond Fund by the Board of Trustees on May 29, 1996.
Class B shares for The AAL Capital Growth, Mid Cap Stock, Small Cap Stock,
International, Utilities, Bond, Municipal Bond, High Yield Bond and Money Market
Funds were approved by the Board of Trustees on , 1996, and the sole shareholder
on January 2, 1997.
On October 16, 1995, the Board of Trustees terminated the Sub-Advisory
Agreements (effective November 1, 1995) with, and approved the assumption of the
duties by the Adviser of, the sub-advisers, Duff & Phelps Investment Management
Co., and Pilgrim Baxter & Associates Ltd., for The AAL Capital Growth, Mid Cap
Stock (f/k/a The Smaller Company Stock), Utilities, Bond, Municipal Bond and
Money Market Funds. The Board of Trustees also approved reductions in the
advisory fees for these Funds.
On May 23, 1995, the Board of Trustees, including a majority of the Trustees who
were not interested persons (as defined in the Act) of any party to the
agreement approved the current Sub-Advisory Agreement with Societe Generale
Asset Management Corp. for The AAL International Fund.
The Advisory Agreement and Sub-Advisory Agreement will continue in effect from
year to year only so long as such continuances are specifically approved at
least annually by the Board of Trustees, including a majority of the Trustees
who are not interested persons (as defined in the Act). The Advisory Agreement
and Sub-Advisory Agreement are terminable upon assignment or at any time without
penalty by the Board of Trustees or by vote of the holders of a majority of the
outstanding voting securities of the Trust. With respect to a particular Fund,
the Advisory or Sub-Advisory Agreement, if any, is terminable by the vote of a
majority of the outstanding shares of such Fund or by the Adviser on 60 days
written notice to the Trust.
Distributor
AAL Capital Management Corporation is the exclusive underwriter for the Funds
under a written Distribution Agreement, dated June 15, 1987, as amended, with
the Funds. The underwriter offers the shares of the Funds for sale on a
continuous basis through its field sales force.
Class A Shares: The public offering price of a Fund's Class A share is the net
asset value next computed plus a sales charge that varies based on the quantity
<PAGE>
purchased. The public offering price of a Fund's Class A share is calculated by
dividing the net asset value of the Class A share being purchased by the
difference (expressed as a decimal) between 100% and the sales charge percentage
of the offering price applicable to the purchase (See "Buying Shares In The
Funds" in the Prospectus). The sales charge scale set forth in the Prospectus
applies to purchases of Class A shares of a particular Fund alone or in
combination with shares of all classes of the other Funds (as noted under "Right
of Accumulation") by any person, including family members who live with the
purchaser (i.e., husband, wife and minor children) and bona fide trustees, and
also applies to purchases made under the Right of Accumulation or Letter of
Intent as set forth in the Prospectus. The Funds offer a reduction in the sales
charges for non-profit organizations, charitable trusts, charitable remainder
Unitrusts, endowments, AAL branches and congregations (See "50% Reduction" in
the Prospectus).
The underwriter does not, and did not, receive compensation in connection with
redemptions and repurchases or brokerage commissions for Class A shares.
The aggregate underwriting commissions received and the amount of commissions
retained by the underwriter for the past three years ended April 30, 1996 for
Class A Shares were as follows:
For Fiscal Year Ended Aggregate Commissions Retained Commissions
April 30, 1994 $25,776,162 $4,846,750
April 30, 1995 $13,705,723 $837,983
April 30, 1996 $17,870,771 $5,027,588
Class B Shares: The public offering price of a Fund's Class B share is the net
asset value (See "Buying Shares in the Funds" in the Prospectus). The Funds
began offering Class B shares on January 8, 1997. Therefore, as of the date of
this Statement, the Underwriter has not received any Commissions for the sale of
Class B shares.
General
AAL Capital Management Corporation also acts as exclusive underwriter for two
additional series of The AAL Mutual Funds: The AAL U.S. Government Zero Coupon
Target Fund, Series 2001; and The AAL U.S. Government Zero Coupon Target Fund,
Series 2006.
<PAGE>
Distribution Plan
The Trust has adopted a distribution plan for Class A and Class B shares (the
"Distribution Plan") pursuant to Rule 12b-1 (the "Rule") under the Act.
The Plan authorizes the distributor to make certain payments (either as a "12b-1
Distribution Fee" or a "Service Fee") to any qualified recipient, as defined in
the Plan, that has rendered assistance in the distribution of the Funds' shares
(such as sale or placement of the Funds' shares, or administrative assistance,
such as maintenance of sub-accounting or other records). The Plan also
authorizes the Distributor to purchase advertising for shares of the Funds, to
pay for sales literature and other promotional material, and to make payments to
its sales personnel.
Any payments paid under the Plan to qualified recipients or expenses will be
reimbursed or paid by the Funds for Class A and Class B shares as follows:
Class A shares -- The AAL Capital Growth, Mid Cap Stock (f/k/a The Smaller
Company Stock Fund, Small Cap Stock, International, Utilities, Bond, Municipal
Bond, High Yield Bond, and Money Market Funds -- In a given fiscal year, the
Funds, pursuant to the Plan, will pay up to a limit of 0.25 of 1% of the average
net assets (0.125 of 1% for The AAL Money Market Fund) as a Service Fee for
Class A shares. Pursuant to the Plan, the Funds will not reimburse or pay for
expenses of past fiscal years or in contemplation of expenses for future fiscal
years. Since August 19, 1992 and October 1, 1992, the Distributor has reimbursed
0.025 of 1% and the entire 0.125 of 1%, respectively, of the fees under Plan for
The AAL Money Market Fund (Prior to January 8, 1997, the Funds described the
0.025 of 1% fee as a 12b-1 Distribution Fee). This continuing reimbursement is
voluntary and may be modified or discontinued at any time; and
Class B shares -- The AAL Capital Growth, Mid Cap Stock (f/k/a The AAL Smaller
Company Stock Fund), Small Cap Stock, International, Utilities, Bond, Municipal
Bond, High Yield Bond and Money Market Funds -- In a given fiscal year, the
Funds, pursuant to the Plan, will pay up to a limit of 0.75 of 1% of the average
daily net assets as a 12b-1 Distribution Fee and up to a limit of 0.25 of 1%
(0.125% for the AAL Money Market Fund) of the average daily net assets as a
Service Fee for Class B shares. Pursuant to the Plan, the Funds will not
reimburse or pay for expenses of past fiscal years or in contemplation of
expenses for future fiscal years.
The Plan states that if and to the extent that any of the payments by a Fund for
Class A and Class B shares are considered to be "primarily intended to result in
the sale of shares" issued by a Fund within the meaning of the Rule, such
payments by a Fund are authorized without limit under the Plans and shall not be
included in the limitations contained in the Plan, including: (a) the costs of
the preparation, printing and
<PAGE>
mailing of all require reports and notices to shareholders, irrespective of
whether such reports or notices contain or are accompanied by material intended
to result in the sale of shares of the Fund or other funds or other investments;
(b) the costs of preparing, printing and mailing of all prospectuses to
shareholders; (c) the costs of preparing, printing and mailing of any proxy
statements and proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of the Fund's
shares; (d) all legal and accounting fees relating to the preparation of any
such reports, prospectuses, proxies and proxy statements; (e) all fees and
expenses relating to the qualification of the Funds and or their shares under
the securities or "Blue Sky" laws of any jurisdiction; (f) all fees under the
Act and the Securities Act of 1933, including fees in connection with any
application for exemption relating to or directed toward the sale of the Fund's
shares; (g) all fees and assessments of the Investment Company Institute or any
successor organization or industry association irrespective of whether some of
its activities are designed to provide sales assistance, (h) all costs of
preparing and mailing confirmations of shares sold or redeemed or share
certificates and reports of share balances; and (i) all costs of responding to
telephone or mail inquiries of shareholders.
The Plan also states that the costs of distribution of the Trust's shares are
expected to exceed the sum of permitted payments, permitted expenses, and the
portion of the sales charge retained by the Distributor, and that the profits,
if any, of the Adviser are dependent primarily on the advisory fees paid by the
Funds to the Adviser. If and to the extent that any investment advisory fees
paid by the Funds might, in view of any excess distribution costs and the common
ownership of the Adviser and Distributor, be considered as indirectly financing
any activity that is primarily intended to result in the sale of shares issued
by the Funds, the payment of such fees is authorized under the Plan. The Plan
states that in taking any action contemplated by Section 15 of the Act as to any
investment advisory contract to which the Trust is a party, the Board of
Trustees, including its Trustees who are not "interested persons" as defined in
the Act, and who have no direct or indirect financial interest in the operation
of the Plans or any agreements related to the Plans ("Qualified Trustees"),
shall, in acting on the terms of any such contract, apply the "fiduciary duty"
standard contained in Sections 36(a) and (b) of the Act.
The Plan requires that while it is in effect the Distributor shall report in
writing at least quarterly to the Trustees, and the Trustees shall review, the
following: (a) the amounts of all payments, the identity of recipients of each
such payment, the basis on which each such recipient was chosen and the basis on
which the amount of the payments was were made; (b) the amounts of expenses and
the purpose of each such expense; and (c) all costs of the other payments
specified in the Plans (making estimates of such costs where necessary or
desirable) in each case during the preceding calendar or fiscal quarter. The
aggregate amount paid by the Funds to the
<PAGE>
Distributor under the Plan for Class A shares for the fiscal year ended April
30, 1996, and the manner in which this amount was spent is as follows:
Gross 12b-1 Fees Paid by the Funds $6,251,972
- -------------------------------------------------------------------------------
Expenditures
- -------------------------------------------------------------------------------
Compensation to Registered Representatives $5,883,885
Other $368,087
The Funds did not make any payments under the Plan for Class B shares. Class B
shares first became available to investors on December 1, 1996.
Management and the Board of Trustees believe that the Distribution Plan and the
Service and 12b-1 fees have a positive impact on sales of the Funds, and the
retention of Fund assets, both of which are beneficial to the Funds and the
Funds' shareholders.
The Plan was approved by the shareholders of the Trust at the Trust's first
meeting of shareholders held on September 13, 1988. The Plan at that time and up
until January 2, 1997 included only the shares that now are referred to as Class
A shares. As of January 2, 1997, the Plan includes Class B shares. The Plan as
Amended and Restated was approved by the sole shareholder of the Trust's Class B
shares on January 2, 1997. The Plan will continue in effect from year-to-year
only so long as such continuance is specifically approved at least annually by
the Board of Trustees and the Qualified Trustees (as defined in the Plan) cast
in person at a meeting called for the purpose of voting on such continuance. The
Plan may be terminated at any time without penalty by a vote of a majority of
the Qualified Trustees or by the vote of the holders of a majority of the
outstanding voting securities for each class of shares of the Trust, with
respect to any Fund by the vote of a majority of the outstanding shares for each
class of such Fund. The Plan may not be amended to increase materially the
amount of payments to be made for the separate class shares without shareholder
approval of the class. While the Plan is in effect, the selection and nomination
of those Trustees who are not interested persons of the Trust is committed to
the discretion of such disinterested Trustees. Nothing in the Plan will prevent
the involvement of others in such selection and nomination if the final decision
on any such selection and nomination is approved by a majority of such
disinterested Trustees.
Portfolio Transactions
The Adviser and/or Sub-Adviser for The AAL International Fund directs the
placement of orders for the purchase and sale of the Funds' portfolio
securities.
<PAGE>
The cost of securities transactions for each Fund will consist primarily of
brokerage commissions or dealer or underwriter spreads. Bonds and money market
instruments are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes.
Occasionally, securities may be purchased directly from the issuer. For
securities traded primarily in the over-the-counter market, the sellers who make
a market in the securities will be dealt with directly unless better prices and
execution are available elsewhere. Such dealers usually act as principals for
their own account. In placing portfolio transactions, the Adviser seeks the best
combination of price and execution.
In determining which brokers provide best execution, the Adviser and/or Sub-
Adviser for The AAL International Fund looks primarily to the stock price quoted
by the broker, and normally places orders with the broker through which the most
favorable price can be obtained. It is expected that securities will ordinarily
be purchased in the primary markets, and that in assessing the best net price
and execution available to a Fund, the Adviser and/or Sub-Adviser for The AAL
International Fund will consider all factors they deem relevant, including the
breadth or the market in the security, the price of the security, the financial
condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any (for the specific transaction and on a
continuing basis). Although it is expected that sales of shares of the Funds
will be made only by the Distributor, the Adviser may in the future consider the
willingness of particular brokers to sell shares of the Funds as a factor in the
selection of brokers for the Funds' portfolio transactions, subject to the
overall best price and execution standard.
Assuming equal execution capabilities, other factors may be taken into account
in selecting brokers or dealers to execute particular transactions and in
evaluating the best net price and execution available. The Adviser and/or
Sub-Adviser for The AAL International Fund may consider "brokerage and research
services" (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934), statistical quotations, specifically the quotations
necessary to determine the Funds' net asset values, and other information
provided to the Funds, to the Adviser or Sub-Adviser (or their affiliates)). The
Adviser and/or Sub-Adviser for The AAL International Fund may also cause a Fund
to pay to a broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction. The Adviser and/or Sub-Adviser for The AAL International Fund
must determine, in good faith, however, that such commission was reasonable in
relation to the value of the brokerage and research services provided, viewed in
terms of that particular transaction or in terms of all the accounts over which
the Adviser and/or Sub-Adviser for The AAL International Fund exercises
investment discretion. It is possible that certain of the services received by
the Adviser and/or Sub-Adviser for
<PAGE>
The AAL International Fund attributable to a particular transaction will benefit
one or more other accounts for which investment discretion is exercised by the
Adviser and/or Sub-Adviser for The AAL International Fund. The Funds paid,
$155,000, $1,108,673 and $1,697,844 in brokerage commissions in each of the past
3 fiscal years.
Dividends, Distributions And Taxes
The AAL Capital Growth, Mid Cap Stock (f/k/a The AAL Smaller Company
Stock Fund), Small Cap Stock, International, Utilities, Bond, High Yield
Bond and Money Market Funds
Each of the Funds' dividends, except for The AAL Municipal Bond Fund's
dividends, from net investment income together with distribution of short-term
capital gains (collectively "income dividends") are taxable as ordinary income
to shareholders whether paid in additional shares or in cash. Any long-term
capital gains ("capital gains distributions") distributed to shareholders are
treated as such by the shareholders, whether received in cash or in additional
shares, regardless of the length of time a shareholder has owned the shares.
These Funds intend to distribute substantially all their net investment income
and net realized long-term capital gains in order to avoid imposition of federal
income and excise tax liability. The AAL Mid Cap Stock, Small Cap Stock and
International Funds expect to pay any dividends annually. The AAL Capital Growth
Fund expects to pay any dividends semi-annually, and The AAL Utilities Fund
expects to pay any dividends quarterly. The AAL Bond, High Yield Bond and Money
Market Funds will accrue income dividends daily and expect to pay these
dividends monthly. These Funds expect to distribute long-term capital gains, if
any, at least annually.
The AAL Municipal Bond Fund
This Fund expects to accrue income dividends daily and to distribute to
shareholders all of its net investment income in monthly dividends and net
realized capital gains, if any, at least annually. Dividends derived from the
interest earned on municipal securities constitute "exempt-interest dividends"
and are generally not subject to federal income tax. Distributions of net
realized long-term capital gain (whether from tax-exempt or taxable securities)
are taxable to shareholders at ordinary income rates. The federal income tax
status of all distributions will be reported to shareholders annually. Such
report will allocate income dividends between tax-exempt and taxable income (if
any) in approximately the same proportions as the Fund's total income during the
year. Accordingly, income derived from each of these sources by the Fund may
vary substantially in any particular distribution period from the allocation
reported to shareholders annually.
<PAGE>
Interest on borrowings a shareholder incurs to purchase or carry shares of this
Fund is not deductible for federal income tax purposes. Shareholders may be
subject to state and local taxes on dividends from this Fund, including those
which are exempt from federal income tax.
Entities or persons who are "substantial users" (or persons who are related to
"substantial users") of facilities financed by industrial revenue bonds should
consult their tax advisors before purchasing shares of The AAL Municipal Bond
Fund. For these purposes, the term "substantial user" is defined generally to
include a "non exempt person" who regularly uses in trade or business a part of
a facility financed from the proceeds of industrial development revenue bonds.
The 1986 Tax Reform Act subjects tax-exempt interest attributable to certain
"private activity bonds" (including, in the case of a regulated investment
company receiving interest on such bonds, a proportionate part of the
exempt-interest dividends paid by that company) to the individual and corporate
alternative minimum tax. Also, it possibly subjects exempt-interest dividends
received by a corporate shareholder of such company to the alternative minimum
tax without regard to whether the investment company's tax-exempt interest was
attributable to such bonds. However, the Fund will not invest more than 20% of
its assets in such private activity bonds. Moreover, certain corporate
shareholders may be subject to a federal "environmental" tax with respect to
their receipt of dividends and distributions. The Omnibus Budget Reconciliation
Act of 1993 provides that market discount on tax-exempt bonds purchased after
April 30, 1993 is to be classified as ordinary upon sale or other disposition of
the bond; thereby creating the possibility that the Fund may distribute taxable
income to shareholders.
The AAL International Fund -- Foreign Withholding Tax
The Fund may be subject to foreign withholding taxes on income and gains derived
from its investments outside the U.S. Such taxes would reduce the yield on the
Fund's investments. Tax treaties between certain countries and the U.S. may
reduce or eliminate such taxes. If more than 50% of the value of the Fund's
total assets at the close of any taxable year consist of stocks or securities of
foreign corporations, the Fund may elect, for U.S. federal income tax purposes,
to treat any foreign country income or withholding taxes paid by the Fund that
can be treated as income taxes under U.S. income tax principles, as paid by its
shareholders. For any year that the Fund makes such an election, each of its
shareholders will be required to include in his income (in addition to taxable
dividends actually received) his allocable share of such taxes paid by the Fund
and will be entitled, subject to certain limitations, to credit his portion of
these foreign taxes against his U.S. federal income tax due, if any, or to
deduct it (as an itemized deduction) from his U.S. taxable income, if any.
Generally, credit for foreign taxes is subject to the limitation that it may not
exceed the shareholder's U.S. tax attributable to his foreign source taxable
income.
<PAGE>
If the pass through election described above is made, the source of the Fund's
income flows through to its shareholders. Certain gains from the sale of
securities and currency fluctuations will not be treated as foreign source
taxable income. In addition, this foreign tax credit limitation must be applied
separately to certain categories of foreign source income, one of which is
foreign source "passive income." For this purpose, foreign "passive income"
includes dividends, interest, capital gains and certain foreign currency gains.
As a consequence, certain shareholders may not be able to claim a foreign tax
credit for the full amount of their proportionate share of the foreign tax paid
by the Fund.
The foreign tax credit can be used to offset only 90% of the alternative minimum
tax (as computed under the Code for purposes of this limitation) imposed on
corporations and individuals. If the Fund is not eligible to make the pass
through election described above, the foreign taxes it pays will reduce its
income, and distributions by the Fund will be treated as U.S. source income.
Each shareholder will be notified within 60 days after the close of the Fund's
taxable year whether, pursuant to the election described above, the foreign
taxes paid by the Fund will be treated as paid by its shareholders for that year
and, if so, such notification will designate: (i) such shareholder's portion of
the foreign taxes paid to such country; and (ii) the portion of the Fund's
dividends and distributions that represent income derived from sources within
such country.
Investments by the Fund in stock of certain foreign corporations that generate
largely passive investment-type income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign investment
companies" or "PFICs"), are subject to special tax rules designed to prevent
deferral of U.S. taxation of the Fund's share of the PFIC's earnings. In the
absence of certain elections to report these earnings on a current basis,
regardless of whether the Fund actually receives any distributions from the
PFIC, a Fund would be required to report certain "excess distributions" and any
gain from the disposition of stock of the PFIC, as ordinary income. This
ordinary income would be allocated ratably to the Fund's holding period for the
stock. Any amounts allocated to prior taxable year will be taxable to the Fund
at the highest rate of tax applicable in that year, increased by a interest
charge determined as though the amounts were underpayment of tax. Amounts
allocated to the year of the distribution or disposition would be included in
the Fund's net investment income for that year, and to the extent distributed as
a dividend to the Fund's shareholders would not be taxable to the Fund.
<PAGE>
Summary
The foregoing is only a summary of certain tax considerations generally
affecting the Funds and their shareholders. Investors are urged to consult their
tax advisors with specific reference to their own tax situations, including
state and local tax liability.
Calculation Of Yield And Total Return
From time to time the Funds may advertise yield and total return for Class A and
Class B shares for various periods of investment. Such information will always
include uniform performance calculations based on standardized methods
established by The Securities and Exchange Commission, which reflect the
front-end sales charge on a Class A share and the contingent deferred sales
charge ("CDSC") on a Class B share, and may also include other total return
information without giving effect to the sales charges. Yield is based on
historical earnings and total return is based on historical calculated earnings;
neither is intended to indicate future performance. Performance information
should be considered in light of the particular Fund's investment objectives and
policies, characteristics and quality of its portfolio securities and the market
conditions during the applicable period and should not be considered as a
representation of what may be achieved in the future. Investors should consider
these factors, in addition to differences in the methods used in calculating
performance information and the impact of taxes on alternative investments when
comparing a particular Fund's performance to the performance data published for
alternative investments.
Standardized Performance Information
Average Annual Total Return. For each of the Funds, except The AAL Money Market
Fund, standardized average annual total return is computed by finding the
average annual compounded rates of return for Class A and Class B shares over
the 1, 5 and 10 year periods (or the portion thereof during which the Fund has
been in existence) that would equate the initial amount invested in each class
to the ending redeemable value according to the following formula:
T = (ERV/P)^(1/n) - 1
Where:
T = average annual total return for the class;
n = number of years and portion of a year;
<PAGE>
ERV = ending redeemable value for the class (of the
hypothetical $1,000 payment) at the end of the 1, 5
and 10 year periods, or fractional portion thereof,
after deduction of all non-recurring charges to be
deducted for the class (CDSC for Class B shares),
assuming redemption at the end of the period;
P = $1,000 (the hypothetical initial payment before
deduction of the maximum sales load, if any); and
^ = raised to the power of.
Annual Returns For The 1, 5 and 10-Year Periods Ended April 30, 1996, For Class
A Shares Based On Gross Amount Invested
<TABLE>
<CAPTION>
<S> <C> <C> <C>
The Fund and Total Return for the Average Annual Total Average Annual Total
Inception Date 1-year Period Ended Return for the 5-Year Return for the Period
4/30/96 Period Ended 4/30/96 Ended 4/30/96 Since
Inception
The AAL Capital 19.84% 11.28% 9.88%
Growth Fund (7/16/87)
The AAL Mid Cap 49.21% N/A 18.77%
Stock Fund (6/30/93)
The AAL Small Cap N/A N/A N/A
Stock Fund (7/1/96)
The AAL International N/A N/A 7.80%*
Fund (8/1/95)
The AAL Utilities 13.28% N/A 5.05%
Fund (3/18/94)
The AAL Bond Fund 1.13% 5.71% 6.73%
(7/16/87)
The AAL Municipal 2.65% 6.08% 6.26%
Bond Fund (7/16/87)
The AAL High Yield N/A N/A N/A
Bond Fund (1/2/97)
</TABLE>
* Annualized from Inception (8/1/95)
There is no standardized annual return information, which is based on gross
amount invested, available for Class B shares. Class B shares first became
available to investors on January 8, 1997.
<PAGE>
Current Yield. Current yield quotations for the Funds, except The AAL Money
Market Fund, are based on a 30-day (or one-month) period, and are computed by
dividing the net investment income per share for each class earned during the
period by the maximum offering price per share for each class on the last day of
the period, according to the following formula:
Yield 2[((a - b)/(cd) + 1)^6 - 1]
where:
a = dividends and interest earned by the Class during the
period;
b = expenses accrued by the Class for the period (net of
reimbursements);
c = the average daily number of shares outstanding for the
Class during the period they were entitled to receive
dividends; and
d = the maximum offering price per share for the Class on the
last day of the period.
^ = to the power of.
For purposes of this calculation, income earned on debt obligations is
determined by applying a calculated yield-to-maturity percentage to the
obligations held during the period. Interest earned on mortgage backed
securities will be calculated using the coupon rate and principal amount after
adjustment for a monthly pay down. Income earned on equity securities is
determined by using the stated annual dividend rate applied over the performance
period. The yields for The AAL Capital Growth, Mid Cap Stock, Utilities, Bond
and Municipal Bond Funds for the 30-day period ended April 30, 1996 for Class A
shares were: .99%; -.88%; 4.05%; 5.66%; and 4.43%, respectively. There is no
yield information available for Class B shares. Class B shares first became
available to investors on January 8, 1997.
When advertising yield, a Fund will not advertise a one-month or a 30-day period
that ends more than 45 days before the date on which the advertisement is
published. From time to time, The AAL Small Cap Stock, international and High
Yield Bond Funds may advertise yield. No historic yield is provided for these
Funds because they only recently commenced operations.
<PAGE>
Tax Equivalent Yield. The AAL Municipal Bond Fund will calculate a tax
equivalent yield based on a 30-day (or one-month) period for Class A and Class B
shares, computed by dividing that portion of the yield of the Fund for the share
class (computed as described above) that is tax-exempt by one minus a stated
income tax rate and adding the quotient to that portion if any, of the yield of
that share class for the Fund that is not tax-exempt. The formula for
computation of the tax equivalent yield is:
X = ( N/1-F) + T
Where:
N = % of yield for the class derived from tax-exempt income;
F = federal income tax rate; and
T = % of yield for the class derived from taxable income.
The tax equivalent yield at 31% tax rate for the 30-day period ended April 30,
1996, for a Class A share for The AAL Municipal Bond Fund was 6.42%. There is no
tax equivalent yield information available for Class B shares. Class B shares
first became available to investors on January 8, 1997.
Current and Effective Yield - The AAL Money Market Fund. The AAL Money Market
Fund may quote a current yield or effective yield for Class A and Class B shares
from time-to-time. The current yield is an annualized yield based on the net
change in account value for each class for a seven-day period. The effective
yield is an annualized yield based on a daily compounding of the current yield
for each share class. These yields are each computed by first determining the
"Net Change in Account Value" for each share class for a hypothetical account
having a share balance of one share at the beginning of a seven-day period
("Beginning Account Value"), excluding capital changes. The Net Change in
Account Value will always equal the total dividends declared with respect to the
account. The yields for each share class are computed as follows:
Current Yield = Net Change in Account Value Per Class 365
Beginning Account Value Per Class x 7
Effective Yield = [1 + Net Change in Account Value Per Class] 365/7 - 1
For the seven-day period ended April 30, 1996, the current and effective yields
of The AAL Money Market Fund for Class A shares were 4.78% and 4.89%
respectively. There is no current and effective yield information available for
Class B shares. Class B shares first became available to investors on January 8,
1997.
<PAGE>
In addition to fluctuations reflecting changes in net income of the Fund
resulting from changes in income earned on its portfolio securities and in its
expenses, the Fund's yield also would be affected if the Fund were to restrict
or supplement its dividends in order to maintain its net asset value at $1.00.
(See "Net Asset Value" in the Prospectus and in this Statement.) Portfolio
changes resulting from net purchase or net redemptions of Fund shares may affect
yield. Accordingly, the Fund's yield may vary from day to day and the yield
stated for a particular past period is not a representation as to its future
yield. The Fund's yield is not guaranteed nor is its principal insured. Although
there is no assurance that it will be able to do so, the Fund will use its best
efforts to maintain its net asset value per share at $1.00.
Other Performance Information
All of The AAL Mutual Funds may, from time to time, include in their sales
literature and advertisements: (1) total return quotations computed for
different time periods or by a method that differs from the computations
described in the section above for Class A and B shares; (2) calculations of the
growth of an investment (or series of investments), at various assumed interest
rates and compounding, to show the effect of the length of time, interest rate
and/or tax deferral on an investment for Class A and B shares; (3) illustrate
the concepts of asset allocation by use of hypothetical case studies using
various risk levels and life cycles, as well as illustrating the effect of
various tax brackets and tax deferrals on hypothetical systematic investing for
Class A and Class B shares; and (4) performance relative to the performance of
other investments such as stocks, bonds, closed end funds, certificates of
deposit, as well as various indices such as the Consumer Price Index and indices
generated by lbbotson & Associates and Chase Global Data and Research Products
for Class A and B shares.
Average Annual Total Return. All Funds, except The AAL Money Market Fund, may
advertise an average annual total return calculation for Class A and Class B
shares for any appropriate time period, based upon the value of a net investment
in the Fund for the class, after deduction of the maximum sales charge for Class
A shares and after deducting the CDSC for Class B shares according to the
following formula:
T =n(ERV/P)^(1/n)-1
where:
T = average annual total return for the class;
n = number of years and portion of a year;
<PAGE>
ERV = ending redeemable value for the
class (of the hypothetical $1,000
investment) at the end of any period
after deducting all non-recurring
charges (CDSC for Class B shares)
assuming redemption at the end of
the period;
P = $1,000 (the hypothetical initial
net investment after deduction of
the sales load, if any).
^ = raised to the power of.
Annual Returns For The 1,5 and 10-Year Periods Ended April 30, 1996, For Class A
Shares Based on Net Amount Invested
<TABLE>
<CAPTION>
<S> <C> <C> <C>
The Fund and Total Return for the Average Annual Total Average Annual Total
Inception Date 1-Year Period Ended Return for the 5-Year Return for the Period
4/30/96 Period Ended 4/30/96 Ended 4/30/96
The AAL Capital 25.85%% 12.37% 10.49%
Growth Fund (7/16/87)
The AAL Mid Cap 56.59% N/A 20.83%
Stock Fund (6/30/93)
The AAL Small Cap N/A N/A N/A
Stock Fund (7/1/96)
The AAL International N/A N/A 15.07%*
Fund (8/1/95)
The AAL Utilities 18.90% N/A 7.49%
Fund (3/18/94)
The AAL Bond Fund 6.18% 6.74% 7.32%
(7/16/87)
The AAL Municipal 7.74% 7.13% 6.85%
Bond Fund (7/16/87)
The AAL High Yield N/A N/A N/A
Bond Fund
</TABLE>
* Annualized from Inception (8/1/95).
There is no annual return information based on net amount invested available for
Class B shares. Class B shares first became available to investors on January 8,
1997.
Performance information for Class A and B shares for the Funds may be compared
to various un-managed indices, such as Morgan Stanley's EAFE and World,
<PAGE>
Dow Jones Industrial and Utility Averages, the S&P 500, the S&P Utilities, the
S&P MidCap 400, the S&P Small Cap or the Lehman Brothers High Yield Index,
Lehman Brothers Aggregate or other Lehman Bond Indices, as well as indices of
similar mutual funds, and various foreign country and currency indices. The
Funds may include in their advertising rankings published by recognized
statistical services or publishers such as Morningstar, Lipper Analytical
Services, Inc., Weisenberger Investment Companies Services or rankings shares
published by other comparable national services that rank mutual funds. They
also may use information from publications such as Barron's, Business Week, The
Economist, Financial World, Forbes, Fortune, Kiplinger's Personal Finance,
Money, Smart Money, the Star, The Wall Street Journal or Worth, and from
videotapes of television shows and interviews involving investment experts,
including employees of the Adviser (and/or Sub-Adviser for The AAL International
Fund). Advertisements may depict performance graphically.
General
The Trust's Declaration of Trust permits its Trustees to issue an unlimited
number of full and fractional shares of beneficial interest and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interest in a Fund. Pursuant to this
authority, the Trustees have issued Class A and Class B shares for the Funds,
except for The AAL U.S. Government Zero Coupon Bond Funds, Series 2001 and 2006.
Each class share represents an interest in a Fund proportionately equal to the
interest of each other share in its class. If the Trust were to liquidate, all
shareholders of a Fund would share pro rata in its net assets for the class
available for distribution to shareholders. If they deem it advisable and in the
best interests of shareholders, the Board may create additional classes of
shares that may differ from each other only as to dividends or, as is the case
with the Funds, as to assets and liabilities (in which case any such class would
have a designation including the word "Series"). Shares of each series are
entitled to vote as a series only to the extent required by the '40 Act or as
permitted by the Trustees. Income and operating expenses are allocated fairly
among the series by the Trustees.
As of April 30, 1996 the officers and Trustees of the Trust owned less than 1 %
of the shares of any Funds.
Except for the election of Trustees and ratification of the selection of
accountants, any matter required to be submitted to shareholder vote is not
deemed to have been effectively acted upon unless approved by the holders of a
"majority" (as defined in the Rule) of the voting securities of each Series
affected by the matter.
The AAL Capital Growth, Mid Cap Stock (f/k/a The AAL Smaller Company Stock
Fund), Small Cap Stock, Utilities, Bond, Municipal Bond, High Yield Bond and
Money Market Funds' custodian is Firstar Trust Company. The AAL International
Fund's
<PAGE>
custodian is The Chase Manhattan Bank, N.A. The custodians are responsible for
holding the Funds' assets.
AAL Capital Management Corporation (the "Adviser") provides certain
administrative, accounting and pricing services to the Funds, including
calculating the daily net asset value per class share; maintaining original
entry documents and books of record and general ledgers; posting cash receipts
and disbursements; reconciling bank account balance monthly; recording purchases
and sales based on Sub-Adviser communications; and preparing monthly and annual
summaries to assist in the preparation of financial statements of, and
regulatory reports for, the Funds. These services were formerly provided by the
Funds' Custodian. An Administrative Services Agreement with the Adviser was
approved by a majority of the Trustees of the Funds, including a majority of the
Trustees who are not interested persons of the Funds or of the Adviser and was
approved by the shareholders of The AAL Municipal Bond Fund on November 27, 1990
and of The AAL Capital Growth, Bond and Money Market Funds on December 20, 1990,
The Board of Trustees approved the addition of:
The AAL Mid Cap Stock Fund (f/k/a as The AAL Smaller Company Stock Fund)
to this agreement on May 18, 1993;
The AAL Utilities Fund on February 24, 1994;
The AAL International Fund on May 23, 1995;
The AAL Small Cap Stock on February 28, 1996; and
The AAL High Yield Bond Fund on May 29, 1996.
The principal motivation for having the Adviser provide these services was cost.
The Adviser has agreed to provide these services at rates that would not exceed
the rates charged by unaffiliated vendors for similar services. The initial rate
of payment for these services was $25,000 per Fund per year, plus the cost of
outside pricing services but only to the extent the Adviser is not voluntarily
absorbing any expenses of that Fund. The annual rates of payment approved by the
Trustees presently are:
The AAL Capital Growth Fund - $35,000
The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock Fund) - $35,000
The AAL Small Cap Stock Fund - $35,000 The AAL International Fund - $40,000 The
AAL Utilities Fund - $35,000 The AAL Bond Fund - $35,000 The AAL Municipal Bond
Fund - $35,000 The AAL High Yield Bond Fund - $_____
<PAGE>
The AAL Money Market Fund - $35,000
The AAL U. S. Government Zero Coupon Target Fund Series 2001 - $2,500
The AAL U. S. Government Zero Coupon Target Fund Series 2006 - $2,500
The Agreement will continue in effect from year to year, as long as it is
approved at least annually by the Funds' Board of Trustees or by a vote of the
outstanding voting securities of the Funds and in either case by a majority of
the Trustees who are not parties to the Agreement or interested persons of any
such party. The Agreement terminates automatically if assigned and may be
terminated without penalty by either party on 60-days' notice. The Agreement
provides that neither the Adviser nor its personnel shall be liable for any
error of judgment or mistake of law or for any loss arising out of any act or
omission in the execution and the discharge of its obligations under the
Agreement, except for willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of reckless disregard of their
obligations and duties under the Agreement.
Shareholder Maintenance Agreement
The Board of Trustees authorized The Funds to contract with AAL Capital
Management Corporation for certain shareholder maintenance services, effective
April 1, 1995. These shareholder services include answering customer inquiries
regarding account status, explaining and assisting customers with the exercise
of their account options and facilitating shareholder telephone transaction
requests.
The annual fee payable to AAL Capital Management Corporation for providing such
services is based upon, and limited by, the difference between the current
account fees actually charged by Firstar Trust Company, as transfer and dividend
disbursing agent, and the normal full-service fee schedule published by Firstar
Trust Company, as well as reimbursement for certain actual out-of-pocket costs
including postage and telephone charges. This account differential, including
reimbursement for expenses, is at an annualized rate of $4.08 per account,
effective June 1, 1996. The Agreement will continue in effect from year to year,
as long as it is approved at least annually by the Funds' Board of Trustees or
by a vote of the outstanding voting securities of the Funds and in either case
by a majority of the Trustees who are not parties to the Agreement or interested
persons of any such party. The Agreement terminates automatically if assigned
and may be terminated without penalty by either party on 60-days' notice. The
Agreement provides that neither the Adviser nor its personnel shall be liable
for any error of judgment or mistake of law or for any loss arising out of any
act or omission in the execution and the discharge of its obligations under the
Agreement, except for willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of reckless disregard of their
obligations and duties under the Agreement. These fees are not currently
assessed against the Fund but may be in the future.
<PAGE>
Independent Accountants
The Trust's independent accountants, Price Waterhouse LLP, examine the Funds'
annual financial statements, assist in the preparation of certain reports to the
Securities and Exchange Commission and prepare the Trust's state and Funds'
federal tax returns.
Financial Statements
The financial statements and notes to financial statements for the Funds
included in the Annual Report to Shareholders of the Trust, for the year ended
April 30, 1996 are hereby incorporated by reference, except for The AAL Small
Cap Stock Fund and The AAL High Yield Bond Fund. Financial information for The
AAL High Yield Bond Fund is not yet a available. The Fund's shares are being
offered for the first time by this prospectus and this Statement of Additional
Information.
The AAL Small Cap Stock Fund -- The AAL Small Cap Stock Fund's shares first
became available to investors on July 1, 1996. Pursuant to the Fund's
undertaking to provide financial information to investors within 4 to 6 months
of operation, the Funds' hereby incorporate by reference the AAL Small Cap Stock
Fund's Semi-Annual Report, dated October 31, 1996, copies of which are available
free of charge from the Distributor.
<PAGE>
THE AAL MUTUAL FUNDS
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements: The AAL Mutual Funds ("Trust") has filed audited
financial statements for the Trust for the fiscal year ended April 30, 1996, for
the following series: The AAL Capital Growth, Mid Cap Stock (f/k/a as The AAL
Smaller Company Stock Fund), International, Utilities, Bond, Municipal Bond Fund
and Money Market Funds; and The AAL U.S. Government Zero Coupon Target Funds,
Series 2001 and 2006, contained in the Annual Reports for April 30, 1996, which
are incorporated by reference into this Post-Effective Amendment to this
Registration Statement. The AAL U. S. Government Zero Coupon Target Funds,
Series 2001 and 2006 are contained in separate prospectuses. The Trust has
closed The AAL U. S. Government Zero Coupon Target Funds, Series 2001 and 2006,
to new investors.
On April 11, 1996, the Trust filed a registration statement that included a new
series, The AAL Small Cap Stock Fund, which became effective July 1, 1996.
(b) Exhibits: Except as noted below, all required exhibits have been
previously filed and are incorporated by reference from the Registrant's
Registration Statement on Form N-1A (File No. 33-12911), as amended;
(4) Specimen stock certificate for The AAL High Yield Bond Fund;
(5)(a) The AAL High Yield Bond Fund Amendment to Advisory Agreement;
(6) The AAL High Yield Bond Fund Amendment to Distribution Agreement;
(8) The AAL High Yield Bond Fund Amendment to Custodian Agreement;
(9)(a) The AAL High Yield Bond Fund Amendment to the Transfer Agency
and Dividend Disbursing Agent Agreement;
(9)(b) The AAL High Yield Bond Fund Amendment to the Administrative
Services Agreement;
<PAGE>
(9)(c) The AAL High Yield Bond Fund Amendment to the Shareholder
Maintenance Agreement;
(11) Independent Accountants' Consent;
(15)(a)The Amended and Restated Distribution Plan;
(17) The Financial Data Schedule (included as Exhibit 27); and
(18) Plan Pursuant to Rule 18f-3.
Item 25. Persons Controlled by or under Common Control with Registrant
AAL Capital Management Corporation (the "Adviser" and "Distributor" for The AAL
Mutual Funds ("Trust")) was organized in 1986 as a Delaware corporation, all of
the shares of which are owned by AAL Holdings Inc., a wholly-owned subsidiary of
the Aid Association for Lutherans ("AAL"). AAL is a non-profit, non-stock
membership organization, licensed to do business as a fraternal benefit society
in all states. Under an Investment Advisory Agreement and a Distribution
Agreement with the Trust, and subject to the supervision of the Funds' Board of
Trustees, AAL Capital Management Corporation provides the investment advisory,
administrative, shareholder, distribution and other services for the Funds.
Item 26. Number of Holders of Securities
On September 30, 1996, the following indicates the number of record holders of
each series of the Registrant:
The AAL Capital Growth Fund - 152,384 The AAL Mid Cap Stock Fund -
77,210 The AAL Small Cap Stock Fund - 4,243 The AAL International Fund
- 19,270; The AAL Utilities Fund - 18,588; The AAL Bond Fund - 32,796;
The AAL Municipal Bond Fund - 17,653 The AAL High Yield Bond Fund - N/A
The AAL Money Market Fund - 20,070
The AAL U.S. Government Zero Coupon Target Funds, Series 2001- 234; and
The AAL U.S. Government Zero Coupon Target Funds, Series 2006 - 236.
Item 27. Indemnification
Under Section 12 of Article Seven of the Registrant's Declaration of Trust, the
<PAGE>
Trust may not indemnify any trustee, officer or employee for expenses (e.g.,
attorney's fees, judgments, fines and settlement amounts) incurred in any
threatened, pending or completed action, if there has been an adjudication of
liability against such person based on a finding of willful misfeasance, bad
faith, gross negligence or reckless disregard of such person's duties of office
("disability conduct").
The Trust shall indemnify its trustees, officers or employees for such expenses
whether or not there is an adjudication of liability, if, pursuant to Investment
Company Act Release 11330, a determination is made that such person was not
liable by reason of disabling conduct by: (i) final decision of the court before
which the proceeding was brought; or (ii) in the absence of such a decision, a
reasonable determination, based on factual review, that the person was not
liable for reasons of such conduct is made by: (a) a majority vote of
disinterested, non-party Trustees; or (b) independent legal counsel in a written
opinion.
Advancement of expenses incurred in defending such actions may be made pursuant
to Release 11330, provided that the person undertakes to repay the advance
unless it is ultimately determined that such person is entitled to
indemnification and one or more of the following conditions is met: (1) the
person provides security for the undertaking; (2) the registrant is insured
against losses arising by reason of any lawful advances; or (3) a majority of
disinterested non-party Trustees or independent legal counsel in a written
opinion determines, based on review of readily available facts, that there is
reason to believe the person ultimately will be found entitled to
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provision, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustees, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of The Investment Adviser.
AAL Capital Management Corporation is the investment adviser (the "Adviser") of
the Registrant. Societe Generale Asset Management Corp is the Sub-Adviser for
The AAL International Fund. For information as to the business, profession,
vocation or
<PAGE>
employment of a substantial nature of the Adviser, reference is made to Parts A
and B of this Registration Statement and to Form ADV filed under the Investment
Advisers Act of 1940 by the Adviser.
Item 29. Principal Underwriters
(a) None
(b)
Name and Principal Positions and Positions and Offices
Business Offices with with Registrant
Underwriter
Ronald G. Anderson Chairman of the Trustee
222 W. College Ave. Board of Directors
Appleton, WI 54919
H. Michael Spence President and President
222 W. College Ave. Director
Appleton, WI 54919
Robert G. Same Senior Vice President, Secretary and
222 W. College Ave. Secretary and Vice President
Appleton, WI 54919 Director
Terrance P. Gallagher Senior Vice President, Treasurer
222 W. College Ave. CFO, Treasurer
Appleton, WI 54919 and Director
Robert Roth Senior Vice None
222 W. College Ave. President
Appleton, WI 54919
James H. Abitz Director None
222 W. College Ave.
Appleton, WI 54915
Woody Eno Director None
222 W. College Ave.
Appleton, WI 54914
Kevin Van Eron Director None
4321 N. Ballard Rd.
Appleton, WI 54919
Jerome Laubenstein Director None
4321 N. Ballard Rd.
Appleton, WI 54919
<PAGE>
Steven Weber Director None
4321 N. Ballard Rd.
Appleton, WI 54919
Joseph H. Thomas Vice President None
222 West College Ave.
Appleton, WI 54919
Anthony De Angelis Vice President None
222 West College Ave.
Appleton, WI 54919
Name and Principal Positions and Positions and Offices
Business Address Offices with with Registrant
Underwriter
Kenneth E. Podell Assistant None
222 West College Ave. Secretary
Appleton, WI 54919
Paul Stadler Assistant Vice None
222 West College Ave. President
Appleton, WI 54919
Stanley H. Herman Vice President None
1427 Hidden Oaks Cir.
Corinth, TX 76205
Lori Richardson Vice President None
222 West College Ave.
Appleton, WI 54919
Murray Ruffell Vice President None
1193 Salt Marsh
Ponte Vedra Beach, FL 32082
Charles Gariboldi Assistant Vice Assistant Treasurer
222 West College Ave. President
Appleton, WI 54919
Byron Vielehr Assistant Vice None
222 West College Ave. President
Appleton, WI 54919
Charles Friedman Assistant Vice None
222 West College Ave. President
Appleton, WI 5491 9
<PAGE>
Joseph Wreschnig Assistant Vice President Assistant Secretary
222 West College Ave. and Assistant Secretary
Appleton, WI 54919
Wendy Schmidt Assistant Vice President None
222 West College Ave.
Appleton, WI 54919
Item 30. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by Registrant
pursuant to Section 31(a) of The Investment Company Act of 1940 and the rules
promulgated thereunder are in the possession of the Registrant and Registrant's
Custodian as follows: all documents required to be maintained by Rule 31a-1(b)
will be maintained by Registrant, except that records required to be maintained
by paragraph (2)(iv) of Rule 31a-1(b) will be maintained by the Custodian.
Item 31. Management Services
Not applicable
Item 32. Undertakings
1. Registrant undertakes to file within four to six months following
the effective date of Post Effective Amendment No. 21 to this Registration
Statement, 1933 Act File No. 33-12911, another Post-Effective Amendment to
include in this Registration Statement financial statements for The High Yield
Bond Fund as of and for a time period reasonably close to the date of said
amendment. Such financial statements need not be certified.
2. The Registrant undertakes that, at the request of the shareholders
holding 10% or more of the outstanding shares of the Registrant, the Registrant
will hold a special meeting for the purpose of considering the removal of a
trustee from office, and the Registrant will cooperate with and assist
shareholders of record who notify the Registrant that they wish to communicate
with the other shareholders for the purpose of obtaining signatures to request
such a meeting, all pursuant to and in accordance with Section 16(c) of the
Investment Company Act, as amended.
3. Registrant undertakes to furnish a copy of the Registrant's latest
annual report to shareholders, upon request and without charge, to each person
to whom a prospectus is delivered.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Appleton and State of Wisconsin, on the 23th day
of October, 1996
THE AAL MUTUAL FUNDS
By /s/ H. Michael Spence, President
--------------------------------
H. Michael Spence, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
/s/ Richard L. Gunderson Trustee October 23, 1996
-----------------------
Richard L Gunderson
/s/ John H. Pender* Trustee October 23, 1996
------------------
John H. Pender
/s/ Richard L. Gady* Trustee October 23, 1996
-------------------
Richard L. Gady
/s/ D. W. Russler* Trustee October 23, 1996
-----------------
D.W. Russler
/s/ Lawrence M. Woods* Trustee October 23, 1996
---------------------
Lawrence M. Woods
/s/ F. Gregory Campbell* Trustee October 23, 1996
-----------------------
F. Gregory Campbell
/s/ Ronald G. Anderson* Trustee October 23, 1996
------------------------
Ronald G. Anderson
/s/ Terrance P. Gallagher Principal October 23, 1996
------------------------- Financial and
Terrance P. Gallagher Accounting Officer
*/s/ Richard L. Gunderson
- ------------------------------
Richard L. Gunderson, Trustee
Pursuant to Powers of Attorney
<PAGE>
Exhibit Index
Item 24 Page
Exhibit Number
24 Powers of Attorney
24(b)(4) Specimen Stock Certificate
24(b)(5)(a) Amendment No. 8 to Investment Advisory Agreement
24(b)(6) Amendment No. 7 to Distribution Agreement
24(b)(8) Amendment No. 11 to Custodian Contract
24(b)(9)(a) Amendment No. 11 to Transfer and Dividend Disbursing Agent
Agreement
24(b)(9)(b) Amendment No. 7 to Administrative Services Agreement
24(b)(9)(c) Amendment No. 3 to Shareholder Maintenance Agreement
24(b)(11) Independent Accountants' Consent
24(b)(15) Amended and Restated Distribution Plan
24(b)(18) Plan Pursuant to Rule 18f-3
27 Financial Data Schedule
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the person whose signature appears
below constitutes John H. Pender to act as lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A of The AAL Mutual Funds, and to the file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes and such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
/s/ Ronald G. Anderson
--------------------------
Ronald G. Anderson,
As Trustee, but not individually
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the person whose signature appears
below constitutes John H. Pender to act as lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A of The AAL Mutual Funds, and to the file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes and such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
/s/ F. Gregory Campbell
--------------------------
F. Gregory Campbell,
As Trustee, but not individually
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the person whose signature appears
below constitutes John H. Pender to act as lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A of The AAL Mutual Funds, and to the file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes and such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
/s/ Richard L. Gady
--------------------------
Richard L. Gady,
As Trustee, but not individually
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the person whose signature appears
below constitutes Richard L. Gunderson to act as lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for such person and
in such person's name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to the Registration
Statement on Form N-1A of The AAL Mutual Funds, and to the file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes and such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
/s/ John H. Pender
--------------------------
John H. Pender,
As Trustee, but not individually
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the person whose signature appears
below constitutes John H. Pender to act as lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A of The AAL Mutual Funds, and to the file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes and such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
/s/ D. W. Russler
--------------------------
D. W. Russler,
As Trustee, but not individually
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the person whose signature appears
below constitutes John H. Pender to act as lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A of The AAL Mutual Funds, and to the file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes and such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
/s/ Lawrence M. Woods
--------------------------
Lawrence M. Woods,
As Trustee, but not individually
<PAGE>
Exhibit 24 (b)(4)
THE AAL MUTUAL FUNDS
The AAL High Yield Bond Fund
(Specimen stock certificate)
Exhibit 24(b)(5)(a)
AMENDMENT NO. 8
TO
INVESTMENT ADVISORY AGREEMENT
The Investment Advisory Agreement between The AAL Mutual Funds and AAL Capital
Management Corporation (f/k/a AAL Advisors, Inc.), effective November 28, 1990,
is hereby amended, effective January 8, 1997, as follows:
1. Schedule A attached to the Investment Advisory Agreement is modified
to add The AAL High Yield Bond Fund. An amended Schedule A, January 8, 1997, is
attached hereto.
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be signed by
the respective Officers effective as of January 8, 1997.
ATTEST: THE AAL MUTUAL FUNDS
By_____________________________ By____________________________
Robert G., Same, Secretary H. Michael Spence, President
ATTEST: AAL CAPITAL MANAGEMENT
CORPORATION
By_____________________________ By____________________________
Robert G. Same, Secretary H. Michael Spence, President
<PAGE>
EXHIBIT A
TO
THE AAL MUTUAL FUNDS INVESTMENT ADVISORY AGREEMENT
Dated November 28, 1990
1. The AAL Capital Growth Fund effective November 1, 1995)
The Management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.70 of 1% on the first $250 million of average daily net assets, 0.65 of 1%
on average daily net assets on the next $250 million of average daily net
assets, 0.575 of 1% on the next $500 million of average daily net assets and
0.50 of 1% on the average daily net assets over $1 billion.
2. The AAL Bond Fund (f/k/a The AAL Income Fund) (effective November 1, 1995)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.55 of 1% on the first $250 million of average daily net assets, 0.50 of 1%
of the next $250 million of net assets and 0.45 of 1% on average daily net
assets over $500 million.
3. The AAL Municipal Bond Fund (effective November 1, 1995)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.55 of 1% of the first $250 million of average daily net assets, 0.50 of 1%
on the next $250 million of net assets and 0.45 of 1% on average daily assets
over $500 million.
4. The AAL Money Market Fund (effective December 21, 1990)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% on the first $500 million of average daily net assets and 0.45 of
1% on average daily net assets over $500 million.
5. The AAL U.S. Government Zero Coupon Target Fund, Series 2001 (effective
November 13, 1991)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% of average daily net assets.
<PAGE>
6. The AAL U.S. Government Zero Coupon Target Fund, Series 2006
(effective November 13, 1991)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% of average daily net assets.
7. The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock Fund)
(effective November 1, 1995)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.75 of 1% on the first $200 million of average daily net assets and 0.65 of
1% on average daily net assets over $200 million.
8. The Utilities Fund (effective November 1, 1995)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% on the first $250 million and 0.45 of 1% of average daily net
assets over $250 million.
9. The AAL International Fund (effective August 1, 1995)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 1% of average daily net assets.
10. The AAL Small Cap Stock Fund (effective July 1, 1996)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.75 of 1% on the first $200 million of average daily net assets and 0.65 of
1% on average daily net assets over $200 million.
11. The AAL High Yield Bond Fund (effective January 8, 1997)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.60 of 1% of average daily net assets.
Exhibit 24(b)(6)
AMENDMENT NO. 7
TO
THE AAL MUTUAL FUNDS DISTRIBUTION AGREEMENT
Effective January 8, 1997, The AAL Mutual Funds Distribution Agreement ("the
Agreement") dated June 15, 1987, as amended between The AAL Mutual Funds and AAL
Capital Management Corporation (f/k/a AAL Distributors, Inc.), is further
amended as follows:
1. Exhibit A to the Agreement is amended to add The AAL High Yield Bond
Fund.
A revised Exhibit A, effective as of the date of this Amendment No. 7 is
attached and incorporated herein.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 7 to be
executed by their duly authorized officers.
ATTEST: THE AAL MUTUAL FUNDS
By_____________________________ By____________________________
Robert G. Same, Secretary H. Michael Spence, President
ATTEST: AAL CAPITAL MANAGEMENT
CORPORATION
By_____________________________ By______________________________
Robert G. Same, Secretary H. Michael Spence, President
<PAGE>
EXHIBIT A
TO
THE AAL MUTUAL FUNDS DISTRIBUTION AGREEMENT
(Effective January 8, 1997)
1. The AAL Capital Growth Fund
2. The AAL Bond Fund
3. The AAL Municipal Bond Fund
4. The AAL Money Market Fund
5. The AAL U.S. Government Zero Coupon Target Fund, Series 2001
6. The AAL U.S. Government Zero Coupon Target Fund, Series 2006
7. The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock Fund)
8. The AAL Utilities Fund
9. The AAL International Fund
10. The AAL Small Cap Stock Fund
11. The AAL High Yield Bond Fund
Exhibit 24(b)(8)
AMENDMENT No. 11
to
THE FIRST AMENDED CUSTODIAN CONTRACT BETWEEN
THE AAL MUTUAL FUNDS AND
FIRSTAR TRUST COMPANY
(F/K/A FIRST WISCONSIN TRUST COMPANY)
Effective January 8, 1997, the First Amended Custodian Contract ("Contract"),
dated October 29, 1987, between The AAL Mutual Funds and Firstar Trust Company
(f/k/a) First Wisconsin Trust Company) is amended as follows:
1. Schedule A (Custodial Agent Fee Schedule) to the Agreement
effective as of April 1, 1994, is amended to add The AAL High
Yield Bond Fund.
An amended Schedule A, effective January 8, 1997, is attached hereto.
All other provisions of the Contract, as amended, and all Sub-Custodian
Agreements, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 11 to the
Contract to be signed by their duly authorized officers.
ATTEST: FIRSTAR TRUST COMPANY
By________________________ By__________________________
ATTEST: THE AAL MUTUAL FUNDS
By________________________ By__________________________
Robert G. Same, Secretary H. Michael Spence, President
<PAGE>
SCHEDULE A
TO
THE OCTOBER 29, 1987, FIRST AMENDED CUSTODIAN
CONTRACT BETWEEN THE AAL MUTUAL FUNDS AND
FIRSTAR TRUST COMPANY, AS AMENDED
FIRSTAR TRUST COMPANY
MUTUAL FUND CUSTODIAL AGENT
Fee Schedule
Effective January 8, 1997
I. Annual fee based on aggregate market value of all AAL Mutual Funds
.00005 (.5 basis points) on all assets
II. Fees for transactions (purchase, sale, exchange, tender, redemption,
maturity, receipt, delivery)
$ 6.00 per book entry security (depository or Federal Reserve system)
$ 25.00 per definitive security (physical)
$ 75.00 per Euroclear
$ 8.00 per principal reduction on pass-through certificates
$ 35.00 per option/futures contract
$ 12.00 per variation margin transaction
$ 10.00 per Fed wire deposit or withdrawal
III. Other Fees
Variable Rate Notes: Used as a short-term investment, variable rate notes offer
safety and prevailing high interest rates. Firstar charge, which is 1/4 of 1%,
is deducted from the variable rate note income at the time it is credited to a
Fund's account.
Extraordinary expenses: Based on time and complexity involved.
Out-of-pocket expenses: Charged to the account.
Fees are billed monthly, based on prior month-end market values and prior
month's transactions
Exhibit 24(b)(9)(a)
AMENDMENT NO. 11
TO
THE TRANSFER AND DIVIDEND DISBURSING AGENT AGREEMENT
BETWEEN
THE AAL MUTUAL FUNDS
AND
FIRSTAR TRUST COMPANY
Effective January 8, 1997, the Transfer and Dividend Disbursing Agent Agreement
("Agreement"), dated June 15, 1987, between The AAL Mutual Funds and Firstar
Trust Company (f/k/a First Wisconsin Trust Company) is amended as follow:
1. Schedule A (Mutual Fund Shareholder Service Fee Schedule) to the Agreement,
effective as of January 8, 1997, is amended to add The AAL High Yield Bond Fund.
An amended Schedule A, effective as of January 8, 1997, is attached hereto. All
other provisions of this Agreement, as amended, shall be in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 11 to be signed
by their duly authorized officers.
ATTEST: FIRSTAR TRUST COMPANY
By___________________________ By____________________________
ATTEST: THE AAL MUTUAL FUNDS
By___________________________ By____________________________
Robert G. Same, Secretary H. Michael Spence, President
<PAGE>
SCHEDULE A
TO
THE AAL MUTUAL FUNDS TRANSFER AND DIVIDEND DISBURSING AGENT
AGREEMENT BETWEEN THE AAL MUTUAL FUNDS AND
FIRSTAR TRUST COMPANY, AS AMENDED
FIRSTAR TRUST COMPANY
MUTUAL FUND SHAREHOLDER SERVICES
Fee Schedule Effective January 8, 1997
I. Annual Maintenance Fees
A. The AAL Capital Growth, Bond, Municipal Bond; Mid Cap Stock (f/k/a
The AAL Smaller Company Stock Fund); Utilities; International; Small Cap Stock;
and High Yield Bond (added January 8, 1997) Funds
$ 13.00 per account, first 50,000 open accounts $ 12.75 per account, next
100,000 open accounts $ 12.50 per account, balance of open accounts $ 6.00 per
closed account
B. The AAL Target Funds
$ 6.00 per open/closed account
C. The AAL Money Market Fund
$ 15.00 per open account
$ 6.00 per closed account
II. Money Market Fund Drafts
$ 1.50 each
III. ACH (Automatic Clearing House)
$ 125.00 per cycle
$ 0.50 account set-up/change
$ 0.35 per item (EFT to account)
$ 3.25 per correction/reversal/return
<PAGE>
IV. IRA/403(b) Maintenance
$ 12.50 per IRA or 403(b) account
$ 25.00 cap for multiple IRA or 403(b) accounts with same social security number
(Firstar will charge $12.50 per IRA or 403(b) account, with a $25.00 cap for
multiple IRA or 403(b) accounts with the same social security number.
V. IRA/403(b) Miscellaneous
Systematic Withdrawals - no charge Direct Stock Rollovers - no charge Transfers
Out - no charge Total Liquidations - no charge Partial Liquidations - no charge
Transfers In - no charge
VI. Other
Outgoing Wires $10.00 per wire
$20.00 stop payment/return item fee
All fees not paid by shareholders are billed monthly.
Out-of-pocket expenses are billed monthly.
Exhibit 24(b)(9)(b)
AMENDMENT NO. 7
TO
ADMINISTRATIVE SERVICES AGREEMENT
The Administrative Services Agreement between The AAL Mutual Funds and AAL
Advisors Inc. (n/k/a AAL Capital Management Corporation), effective July 1,
1990, as amended, is hereby further amended, effective January 8, 1997, as
follows:
1 . Schedule B attached to the Administrative Services Agreement is
amended to add The AAL High Yield Bond Fund. Schedule B, Effective as
of January 8, 1997, is attached hereto.
2. Pursuant to Section 2.1 of the Administrative Services Agreement,
the annual rate of payment for The AAL High Yield Bond Fund will be at
the annual rate of $_____ plus the actual costs of the pricing services
from unaffiliated parties.
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be signed by
the respective officers effective as of January 8, 1997.
ATTEST: THE AAL MUTUAL FUNDS
By____________________________ By_____________________________
Robert G. Same, Secretary H. Michael Spence, President
ATTEST: AAL CAPITAL MANAGEMENT
CORPORATION
By____________________________ By______________________________
Robert G. Same By H. Michael Spence, President
<PAGE>
SCHEDULE B
(Effective January 8, 1997)
The AAL Capital Growth Fund
The AAL Bond Fund
The AAL Municipal Bond Fund
The AAL Money Market Fund
The AAL U.S. Government Zero Coupon Target Fund, Series 2001
The AAL U.S. Government Zero Coupon Target Fund, Series 2006
The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock Fund)
The AAL Utilities Fund
The AAL International Fund
The AAL Small Cap Stock Fund
The AAL High Yield Bond Fund
Exhibit 24(b)(9)(c)
AMENDMENT NO. 3
TO
SHAREHOLDER MAINTENANCE AGREEMENT
The Shareholder Maintenance Agreement between The AAL Mutual Funds and AAL
Capital Management Corporation, as amended, effective April 1, 1995, is hereby
amended, January 8, 1997, as follows:
1. Schedule A, attached to the Shareholder Maintenance Agreement,
is amended to add The AAL High Yield Bond Fund. Schedule A,
effective as of January 8, 1997, is attached hereto.
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be signed by
the respective officers effective as of January 8, 1997.
ATTEST: THE AAL MUTUAL FUNDS
By_________________________ By______________________________
Robert G. Same, Secretary H. Michael Spence, President
ATTEST: AAL CAPITAL MANAGEMENT
CORPORATION
By________________________ By______________________________
Robert G. Same, Secretary H. Michael Spence, President
<PAGE>
SHAREHOLDER MAINTENANCE AGREEMENT
SCHEDULE A
(effective January 8, 1997)
The AAL Capital Growth Fund
The AAL Bond Fund
The AAL Municipal Bond Fund
The AAL Money Market Fund
The AAL U.S. Government Zero Coupon Target Fund, Series 2001
The AAL U.S. Government Zero Coupon Target Fund, Series 2006
The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock Fund)
The AAL Utilities Fund
The AAL International Fund
The AAL Small Cap Stock Fund
The AAL High Yield Bond Fund
Exhibit 24(b)(11)
Independent Accountants' Consent
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 21 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated May 24, 1996, relating to the financial
statements and financial highlights appearing in the April 30, 1996 Annual
Reports to Shareholders of The AAL Smaller Company Stock Fund, The AAL Capital
Growth Fund, The AAL International Fund, The AAL Utilities Fund, The AAL Bond
Fund, The AAL Municipal Bond Fund, and The AAL Money Market Fund (seven of the
funds comprising The AAL Mutual Funds), which are also incorporated by reference
into the Registration Statement. We also consent to the references to us under
the heading "Financial Highlights" and "Custodian, Transfer Agent and
Independent Accountants" in the Prospectus and under the heading "Independent
Accountants" in the Statement of Additional Information.
Price Waterhouse LLP
Milwaukee, Wisconsin
October 24, 1996
<PAGE>
Exhibit 24(b)(15)
Amended and Restated
Distribution Plan for
The AAL Mutual Funds
January 8, 1997
The AAL Mutual Funds Distribution Plan (the "Plan") as adopted by a vote of the
Board of Trustees and of the Qualified Trustees of the Trust on June 9, 1987, as
amended, is hereby further amended and restated, effective January 2, 1997, to
redescribe the shares originally detailed in the Plan as "Class A" shares and to
add "Class B" shares to the Plan as follows:
1. The Plan. This Plan is the written plan contemplated by Rule 12b-I (the
"Rule") under the Investment Company Act of 1940 (the "Act") of The AAL
Mutual Funds (the "Trust" or "Funds") for Class A and Class B shares of
the Funds, which are described in The AAL Mutual Funds' "Plan Pursuant
to Rule 18f-3 under the Investment Company Act of 1940."
2. Definitions. As used in this Plan for Class A and Class B shares of
the Funds, the following terms shall have the following meanings:
(a) "Qualified Recipient" shall mean any broker-dealer or other "person" (as
that term is defined in the Act) which: (i) has entered into a written agreement
(a "related agreement") that complies with the Rule with the Trust's
Distributor; and (ii) has rendered distribution assistance (whether direct,
administrative or both) in the distribution of the Trust's Class A and Class B
shares.
(b) "Qualified Holdings" shall mean all Class A and Class B shares of the Trust
beneficially owned by: (i) a Qualified Recipient; (ii) the customers (brokerage
or other) of a Qualified Recipient; (iii) the clients (investment advisory or
other) of a Qualified Recipient; (iv) the accounts as to which a Qualified
Recipient has a fiduciary or custodial relationship; and (v) the members of a
Qualified Recipient, if such Qualified Recipient is an association or union;
provided that the Qualified Recipient shall have been instrumental in the
purchase of such Class A and/or Class B shares by, or shall have provided
administrative assistance to, such customers, clients, accounts or members in
relation thereto. The Distributor may make final and binding decisions as to all
matters relating to Qualified Holdings and Qualified Recipients, including but
not limited to: (i) the identity of Qualified Recipients; (ii) whether or not
any Class A and/or Class B shares are to be considered as Qualified Holdings of
any particular
<PAGE>
Qualified Recipient; and (iii) what Class A and Class B shares, if any, are to
be attributed to a particular Qualified Recipient, to a different Qualified
Recipient or to no Qualified Recipient.
(c) "Qualified Trustees" shall mean the Trustees of the Trust who are not
interested persons, as defined in the Act, of the Trust and who have no direct
or indirect financial interest in the operation of this Plan or any agreement
related to this Plan. While this Plan is in effect, the selection and nomination
of Qualified Trustees shall be committed to the discretion of the Trustees who
are not interested persons of the Trust. Nothing herein shall prevent the
involvement of others in such selection and nomination if the final decision on
any such selection and nomination is approved by a majority of such
disinterested Trustees.
(d) "Permitted Payments" shall mean payments by the Distributor to Qualified
Recipients as permitted by this Plan.
(e) "Permitted Expenses" shall mean expenses incurred by the Distributor in
connection with the distribution of shares of the Trust as defined in the
sections "Expenses Authorized" below on Class A and Class B shares.
(f) Permitted Payments and Permitted Expenses shall not include any expenses
listed in the sections "Certain Other Payments Authorized" below on Class A and
Class B shares.
3. Payments Authorized.
Class A Shares
The Distributor is authorized, pursuant to this Plan, to make Permitted
Payments to any Qualified Recipient under a related agreement on either
or both of the following bases for Class A shares:
(a) as reimbursement for direct expenses incurred in the course of distributing
Trust Class A and Class B shares or providing administrative assistance to the
Trust or its shareholders, including, but not limited to, advertising, printing
and mailing promotional material, (including commissions and other compensation
paid to such personnel); and/or
(b) at a rate specified in the related agreement with the Qualified Recipient in
question based on the average value of the Qualified Holdings of such Qualified
Recipient.
<PAGE>
The Distributor may make Permitted Payments in any amount to any Qualified
Recipient, provided that: (i) that total amount of all Permitted Payments made
during a fiscal year of the Trust to all Qualified Recipients (whether made
under (a) and/or (b) above) do not exceed, in that fiscal year of the Trust, the
amounts for each Fund's Class A shares as set forth in Exhibit A, attached
hereto; and (ii) a majority of the Trust's Qualified Trustees may at any time
decrease or limit the aggregate amount of all Permitted Payments or decrease or
limit the amount payable to any Qualified Recipient for Class A shares. Each
Fund will reimburse the Distributor for such Permitted Payments for Class A
shares within such limit, but the Distributor shall bear any Permitted Payments
beyond such limits.
Class B Shares
The Distributor is authorized, pursuant to this Plan, to make Permitted
Payments to any Qualified Recipient under a related agreement on either
or both of the following bases for Class B shares:
(a) as reimbursement for direct expenses incurred in the course of distributing
Trust shares or providing administrative assistance to the Trust or its
shareholders, including, but not limited to, advertising, printing and mailing
promotional material, (including commissions and other compensation paid to such
personnel); and/or
(b) at a rate specified in the related agreement with the Qualified Recipient in
question based on the average value of the Qualified Holdings of such Qualified
Recipient.
The Distributor may make Permitted Payments in any amount to any Qualified
Recipient, provided that: (i) that total amount of all Permitted Payments made
during a fiscal year of the Trust to all Qualified Recipients (whether made
under (a) and/or (b) above) do not exceed, in that fiscal year of the Trust, the
amounts for each Fund's Class B shares, if any, as set forth in Exhibit B,
attached hereto; and (ii) a majority of the Trust's Qualified Trustees may at
any time decrease or limit the aggregate amount of all Permitted Payments or
decrease or limit the amount payable to any Qualified Recipient for Class B
shares. Each Fund will reimburse the Distributor for such Permitted Payments for
Class B shares, if any, within such limit, but the Distributor shall bear any
Permitted Payments beyond such limits.
4. Expenses Authorized. The Distributor is authorized, pursuant to this
Plan, to purchase advertising for Class A and/or Class B shares of the
trust, to pay for sales literature and other promotional material, and
to make payments to sales personnel affiliated with it, in the form of
commission or other compensation.
<PAGE>
Any such advertising and sales material may include references to other
open end investment companies or other investments and any salesmen so
paid are not required to devote their time solely to the sale of Trust
Class A and/or Class B shares. Any such expenses ("Permitted Expenses")
made during a fiscal year of any Fund shall be reimbursed or paid by
the Fund, except that the combined amount of reimbursement or payment
of Permitted Expenses together with the Permitted Payments made
pursuant to Section 3 for Class A and/or Class B shares of this Plan by
a Fund shall not, in the aggregate, in that fiscal year of the Fund
exceed the amounts for each Fund's Class A and/or Class B shares as set
forth in Exhibits A and B, attached hereto, and the Distributor shall
bear any such expenses beyond such limits. No such reimbursement may be
made for Permitted Expenses or Permitted Payments for fiscal years
prior to the fiscal year in question or in contemplation of future
Permitted Expenses or Permitted Payments.
5. Certain Other Payments Authorized. If and to the extent that any of the
payments by the Trust listed below are considered to be "primarily
intended to result in the sale of shares" issued by the Trust within
the meaning of the Rule, such payments by the Trust are authorized
without limit under this Plan and shall not be included in the
limitations contained in this Plan: (i) the costs of the preparation,
printing and mailing of all required reports and notices to
shareholders, irrespective of whether such reports or notices contain
or are accompanied by material intended to result in the sale of shares
of the Trust or other funds or other investments; (ii) the costs of
preparing, printing and mailing of all prospectuses to shareholders;
(iii) the costs of preparing, printing and mailing of any proxy
statements and proxies, irrespective of whether any such proxy
statement includes any item relating to, or directed toward, the sale
of the Trust's shares; (iv) all legal and accounting fees relating to
the preparation of any such reports, prospectuses, proxies and proxy
statements; (v) all fees and expenses relating to the qualifications of
the Trust, the Funds and/or their shares under the securities or
"Blue-Sky" law of any jurisdiction; (vi) all fees under the Act and the
Securities Act of 1933, including fees in connection with any
application for exemption relating to or directed toward the sale of
the Trust's shares; (vii) all fees and assessments of the Investment
Company Institute or any successor organization, irrespective of
whether some of its activities are designed to provide sales
assistance; (viii) all costs of preparing and mailing confirmations of
shares sold or redeemed or share certificates, and reports of share
balances; and (ix) all costs of responding to telephone or mail
inquires of shareholders.
6. Investment Advisory Fees. It is recognized that the costs of
distributing Class A and Class B shares of the Trust are expected to
exceed the sum of Permitted Payments and Permitted Expenses ("Excess
Distribution Costs") and that the profits,
<PAGE>
if any, of the Trust's Advisor are dependent primarily on the advisory
fees paid by the Funds to the Advisor. If and to the extent that any
investment advisory fees paid by a Fund might, in view of any Excess
Distribution Costs, be considered as indirectly financing any activity
that is primarily intended to result in the sale of Class A and/or
Class B shares issued by the Trust or Fund, the payment of such fees is
authorized under this Plan. In taking any action contemplated by
Section 15 of the Act as to any investment advisory contract to which
the Trust or a Fund is a party, the Trust's Board of Trustees,
including its Trustees who are not "interested persons," as defined in
the Act, shall, in acting on the terms of any such contract, apply the
"fiduciary duty" standard contained in Sections 36(a) and 36(b) of the
Act.
7. Reports. While this Plan is in effect for Class A and/or Class B
shares, the Distributor shall report in writing at least quarterly to
the Trust's Board of Trustees, and the Board shall review the
following: (i) the amounts of all Permitted Payments for Class A and
Class B shares, the identity of the recipients of each such Payment,
the basis on which each such recipient was chosen as a Qualified
Recipient and the basis on which the amount of the Permitted Payment to
such Qualified Recipient was made; (ii) the amounts of Permitted
Expenses for Class A and Class B shares and the purpose of each such
Expense; and (iii) all costs of each item specified in Section 5 of the
Plan for Class A and Class B shares (making estimates of such costs
where necessary or desirable), in each case during the preceding
calendar or fiscal quarter.
8. Effectiveness, Continuation, Termination and Amendment.
Class
A Shares. This Plan as applied to Class A shares has been approved: (i)
by a vote of the Board of Trustees of the Trust and of the Qualified
Trustees, cast in person at a meeting called for the purpose of voting
on Class A shares of this Plan; and (ii) by a vote of holders of at
least a "majority" (as defined in the Act) of the outstanding voting
securities of each Fund for Class A shares. This Plan, unless
terminated as hereinafter provided, continues in effect from year to
year only so long as such continuance is specifically approved at least
annually by the Trust's Board of Trustees and its Qualified Trustees
cast in person at a meeting called for the purpose of voting on such
continuance for Class A shares. This Plan may be terminated at any time
by a vote of a majority of the Qualified Trustees or by the vote of the
holders of a "majority" (as defined in the Act) of the outstanding
Class A shares of any Fund. This Plan may not be amended to increase
materially the amount of payments to be made for Class A shares without
shareholder approval, as set forth in (ii) above, and all amendments
must be approved in the manner set forth under (i) above. In the event
of termination of this Plan for Class A shares, the Distributor shall
be reimbursed only for Permitted Payments and Permitted Expenses for
Class A shares incurred to the
<PAGE>
date of termination and within the limit set forth in Section 4 above.
Class B Shares. This Plan as applied to Class B shares has been
approved: (i) by a vote of the Board of Trustees of the Trust and of
the Qualified Trustees, cast in person at a meeting called for the
purpose of voting on Class B shares of this Plan; and (ii) by a vote of
holders of at least a "majority" (as defined in the Act) of the
outstanding voting securities of each Fund for Class B shares. This
Plan as applied to Class B shares shall, unless terminated as
hereinafter provided, continue in effect until January 2, 1998, and
from year to year thereafter only so long as such continuance is
specifically approved at least annually by the Trust's Board of
Trustees and its Qualified Trustees cast in person at a meeting called
for the purpose of voting on such continuance for Class B shares. This
Plan as applied to Class B shares may be terminated at any time by a
vote of a majority of the Qualified Trustees or by the vote of the
holders of a "majority" (as defined in the Act) of the outstanding
Class B shares of any Fund. This Plan may not be amended to increase
materially the amount of payments to be made for Class B shares without
shareholder approval, as set forth in (ii) above, and all amendments
must be approved in the manner set forth under (i) above. In the event
of termination of this Plan for Class B shares, the Distributor shall
be reimbursed only for Permitted Payments and Permitted Expenses for
Class B shares incurred to the date of termination and within the limit
set forth in Section 4 above.
<PAGE>
EXHIBIT A
TO THE AAL MUTUAL FUNDS DISTRIBUTION PLAN
(Effective January 8, 1997)
CLASS A SHARES
1. The AAL Capital Growth Fund
Service Fee: 0.25 of 1% of the average net assets
2. The AAL Bond Fund
Service Fee: 0.25 of 1% of the average net assets
3. The AAL Municipal Bond Fund
Service Fee: 0.25 of 1% of the average net assets
4. The AAL Money Market Fund
Service Fee: 0.125 of 1% of the average net assets
5. The AAL U.S. Government Zero Coupon Target Fund, Series 2001
12b-1 Distribution Fee: 0.10 of 1% of the average net assets
6. The AAL U.S. Government Zero Coupon Target Fund, Series 2006
12b-1 Distribution Fee: 0.10 of 1% of the average net assets
7. The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock Fund)
Service Fee: 0.25 of 1% of the average net assets
8. The AAL Utilities Fund
Service Fee: 0.25 of 1% of the average net assets
9. The AAL International Fund
Service Fee: 0.25 of 1% of the average net assets
10. The AAL Small Cap Stock Fund
<PAGE>
Service Fee: 0.25 of 1% of the average net assets
11. The AAL High Yield Bond Fund
Service Fee: 0.25 of I% of the average net assets
<PAGE>
EXHIBIT B
TO THE AAL MUTUAL FUNDS DISTRIBUTION PLAN
(Effective January 8, 1997)
CLASS B SHARES
1. The AAL Capital Growth Fund
12b-1 Distribution Fee: 0.75 of 1% of the average net assets, and
Service Fee: 0.25 of 1% of the average net assets
2. The AAL Bond Fund
12b-1 Distribution Fee: 0.75 of 1% of the average net assets, and
Service Fee: 0.25 of 1% of the average net assets
3. The AAL Municipal Bond Fund
12b-1 Distribution Fee: 0.75 of 1% of the average net assets, and
Service Fee: 0.25 of 1% of the average net assets
4. The AAL Money Market Fund
12b-1 Distribution Fee: 0.75 of 1%, and
Service Fee: 0.125 of 1%
4. The AAL Mid Cap Stock Fund
12b-1 Distribution Fee: 0.75 of 1% of the average net assets, and
Service Fee: 0.25 of 1% of the average net assets
5. The AAL Utilities Fund
12b-1 Distribution Fee: 0.75 of 1% of the average net assets, and
Service Fee: 0.25 of 1% of the average net assets
6. The AAL International Fund
12b-1 Distribution Fee: 0.75 of 1% of the average net assets, and
Service Fee: 0.25 of 1% of the average net assets
7. The AAL Small Cap Stock Fund
<PAGE>
12b-1 Distribution Fee: 0.75 of 1% of the average net assets, and
Service Fee: 0.25 of 1% of the average net assets
8. The AAL High Yield Bond Fund
12b-1 Distribution Fee: 0.75 of 1% of the average net assets, and
Service Fee: 0.25 of 1% of the average net assets
Exhibit 24(b)(18)
THE AAL MUTUAL FUNDS
Plan Pursuant to Rule 18f-3 under the
Investment Company Act of 1940
Effective January 2, 1996
Whereas, the Board of Trustees of The AAL Mutual Funds (the "Trust") have
considered the following multi-class plan (the "Plan") under which the Trust may
offer multiple classes of shares of its now existing and hereafter created
series pursuant to Rule 18f-3 under the Investment Company Act of 1940 (the "40
Act"); and
Whereas, a majority of the Trustees of the Trust and a majority of the Trustees
who are not interested persons of the Trust have found the Plan, as proposed, to
be in the best interests of the shareholders of each class of the Trust, as well
as the Trust itself;
Therefore, the Trust hereby approves and adopts the Plan as set forth below
pursuant to Rule 18f-3 of the 40 Act.
The Plan
All current and future Series ("Funds") of the Trust may, from time to time,
issue one or more of the following classes of shares:
Class A shares
Class B shares
Each class is subject to such investment minimums and other conditions as set
forth in the Trust's prospectus as from time to time is in effect. Differences
in expenses among classes, the conversion from one class to another class, and
exchange features are subject to the terms and conditions of this plan.
Initial Sales Charge
Class A shares of the Funds are offered at a public offering price that is equal
to their net asset value ("NAV") plus a sales charge of up to 4.75% of the
public offering price (with a lesser sales charge on certain series as described
in the prospectus). The maximum sales charges on Class A shares may be reduced
or waived as permitted under Rule 22d-1 of the 40 Act and described in the
prospectus. For example, sales charges may be reduced or eliminated for
investments at various levels (breakpoints) as well as for Lutheran
organizations, and employees of the adviser and sub-adviser. Class B Shares have
no initial sales charge and no sales charge is imposed when B Shares are
automatically converted to A Shares.
<PAGE>
Contingent Deferred Sales Charge
A Contingent Deferred Sales Charge ("CDSC") are imposed on Class B Shares under
certain circumstances. The Trust imposes a CDSC if the investor redeems shares
that have been owned less than 5 years according to the following schedule:
Holding Period of: Percentage CDSC
1 Year or Less 5%
More than 1 Year to 2 Years 4%
More than 2 Years to 3 Years 3%
More than 3 Years to 4 Years 2%
More than 4 Years to 5 Years 1%
More than 5 Years Converted to A Shares
The amount of the CDSC is based upon the lesser of NAV at the time of redemption
or purchase and is gradually reduced over a period of up to 5 years. Consistent
with the requirements of Rule 6c-10 of the 40 Act, the CDSC will not be imposed
under certain circumstances as described in the prospectus. For example, the
CDSC will not be imposed on shares acquired by dividend or capital gain or upon
certain redemptions from retirement plans. In determining whether an amount is
available for redemption without a CDSC as well as computing the amount of the
CDSC, it is assumed that shares acquired by reinvesting dividends and capital
gains are redeemed first, then shares are redeemed in the order purchased, from
last to first.
Both Class A and Class B Shares are aggregated for purposes of Rights of
Accumulation and Letters of Intent as described in the prospectus.
Separate Arrangements and Expense Allocations of Each Class
Class A and Class B Shares pay the expenses associated with their different
distribution and servicing arrangements. Each class may, at the Trustees'
discretion, also pay a different share of other expenses, not including advisory
or custodial fees or other expenses related to the management of the Trust's
assets, if these expenses are actually incurred in a different amount by that
class, or if the class receives services of a different kind or to a different
degree than the other class. All other expenses will be allocated to each class
on the basis of the net assets of the particular Fund class in relation to the
net assets of the Fund. However, the Trust's Money Market Fund operates pursuant
to Rule 2a-7 of the 40 Act and makes daily distributions of its net investment
income. This Fund may allocate such other expenses to each share regardless of
class, or based on relative net assets, (i.e. settled shares), as permitted by
Rule 18f-3 under the 40 Act.
<PAGE>
Class A and B shares pay fees for services rendered and borne in connection with
personal services rendered to shareholders of their respective class and the
maintenance of shareholder accounts. In addition, both classes pay a service fee
at an annual rate of .25% of net assets (except for the AAL Money Market Fund
which pays the fee at the rate of 0.125%) computed on a daily basis and Class B
Shares pay a separate Rule 12b-1 distribution fee at an annual rate of .75% of
net assets computed on a daily basis, as described in the prospectus.
Conversion Features
Class B Shares of each Fund automatically convert to Class A shares of the same
Fund after they have been held for 5 years and thereafter are subject to the
lower fees charged to Class A Shares In this regard, if there are any material
changes in payments authorized under the Rule 12b-1 Plan applicable to Class A
Shares without the approval of the Class B shareholders, the Trust will
establish a new class of shares into which Class B Shares would convert, on the
same terms as those applied to Class A Shares before such increase.
Exchange Features
A shareholder may exchange Class A and Class B Shares of any Fund for the same
class of shares, with identical registration, at net asset value (except for
exchanges involving unprivileged Money Market Fund Class A Shares for other
Class A Shares).
If less than all of a Class B Share investment is exchanged, any portion of the
investment attributable to dividends, capital gains and or capital appreciation
will be exchanged first and thereafter, any portions exchanged will be in the
order purchased, from first to last.
Dividends/Distributions
Each Fund pays out as dividends substantially all of its net investment income
(which comes from dividends and interest it receives from its investments) and
net realized short term capital gains. All dividends and distributions will be
paid in the form of additional shares of the series and class of shares that
generated the dividend or distribution unless the shareholder has elected
another option. Dividends paid by each Fund with respect to each class are
calculated in the same manner and at the same time.
Voting Rights
Each share of a Fund entitles the shareholder of record to one vote. Each Fund
votes separately on matters relating to solely to itself. Each class shall have
exclusive voting rights as on any matter that solely affects such class, and
shall have separate voting rights on any matter submitted to shareholders in
which class interests differ. All
<PAGE>
shareholders will have equal voting rights on any matter that affects all
shareholders equally. Because of the automatic conversion, Class B Shareholders
may be asked to vote separately to vote on any material increase in payments
under the Class 12b-1 plan.
The Plan is subject to amendment as permitted by the Trust's Articles and
Bylaws, as well as applicable law, and shall be construed to comply with Rule
18f-3 of the 40 Act.
The AAL Mutual Funds
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<PER-SHARE-NII> .360
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<INVESTMENTS-AT-VALUE> 421885431
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<SHARES-COMMON-PRIOR> 44678577
<ACCUMULATED-NII-CURRENT> 41051
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